
Class. H b 



Book 



W\7_ 



THE 



SCIENCE OE WEALTH: 

A MANUAL OF POLITICAL ECONOMY. 

EMBRACING 

THE LAWS OF TRADE, CURRENCY, 

AND FINANCE. 



By AMASA WALKER, LL.D., 

LECTURER ON PUBLIC ECONOMY IN AMHERST COLLEGE. 



FOURTH EDITION. 
REVISED AND ENLARGED. 



BOSTON : 
LITTLE, BROWN, AND COMPANY. 

1867. 






Entered, according to Act of Congress, in the year 1866, by 

AM AS A WALKER, 

In the Clerk's Office of the District Court of the District of Massachusetts. 



CAMBRIDGE : 
STEREOTYPED AND PRINTED BY JOHN WILSON AND SON. 



PREFACE 

TO THE FOURTH EDITION. 



The demand for another issue of The Science op Wealth 
gives the author an opportunity to express his high gratifi- 
cation at the unexpected favor with which the work has 
been received, not so much from any considerations per- 
sonal to himself, as from the evidence it affords of the 
greater interest now felt than formerly in the subjects of 
which it treats. 

Once the sale, within a few months, of even one hundred 
copies of a work on Political Economy, would have been 
regarded as remarkable ; * while at present it appears, not 
only from the sale of this, but of similar cotemporary works, 
that the reading public begins to appreciate the importance 
of a science which a few years since was almost entirely 
neglected ; and not only neglected, but contemned. 

* It was a common saying of one of the trade in Boston, thirty years 
ago, that " only three men ever purchased a new work on Political Econ- 
omy ; and those were Nathan Appleton, Henry Lee, and Abhott Lawrence." 
This was nearly the literal- fact. An edition of one thousand copies of 
J. S. Mill's admirable work, republished in this country in 1848, supplied the 
demand for some fifteen years, averaging a sale of about seventy copies per 
annum ! 



iv PREFACE. 

To be sure, Political Economy has for many years 
been placed in the curriculum of our colleges, but not 
unfrequently as a matter of mere form ; the s*tudy being 
superficially passed over, or, more frequently, omitted 
altogether. 

The author will further remark, that it has given him 
great pleasure to learn that the demand for his work has 
been largely from business men. Feeling as he does the 
importance of the science to that class of persons ; knowing 
how much perplexity and loss he encountered himself, while 
in trade, from an entire ignorance of the laws of currency, 
— the author cannot but believe that no rank or profession 
has a greater pecuniary interest in the subject than those 
engaged in the commerce and manufactures of the country. 

Some additions have been made in an Appendix attached 
to the present edition. 

The great changes that have taken place in the produc- 
tion and use of gold within the past few years, has induced 
the author to insert an article showing its present position 
in the commerce of the world, the fluctuations that have 
taken place in the premium since the suspension of specie 
payments in the United States, and the cause of those fluc- 
tuations. A table is given of the monthly price of gold, 
from Jan. 1, 1862, to the present time; also, a table show- 
ing the extreme quarterly fluctuations, for the same time, 
illustrated by a diagram. The influence which the great 
discoveries of gold have exerted upon the trade of India 
and China is also exhibited ; and tables given of the prices 
of the principal staples of those countries for the last 
eighteen years. 



PREFACE. V 

The peculiar relation of California, as a gold-producing 
State, to the mixed-currency system of the United States, is 
also described. Gold mining, as a means of discharging 
the national indebtedness, is also considered ; together with 
the effect of the present currency expansion upon wages 
and salaries, and other matters of interest. 

Corrections have been made, in the present edition, of 
errors discovered in previous ones, and some modifications 
in the form of expression ; but no principle has been changed, 
and the work, in all its essential features, remains intact. 

A. W. 

November, 1867. 



PREFACE. 



In the preparation of the following work, it has been my 
hope, while furnishing a Manual of Political Economy, 
which should present clearly and intelligibly the leading 
principles of the science, to afford a full and thorough 
analysis and description of the different currencies used in 
the commerce of the world, especially to exhibit the nature 
and effects of the mixed-currency system of the United 
States. 

Regarding the instruments of exchange as essential, not 
only to the largest production, but to an equitable distribu- 
tion and advantageous consumption, of wealth, I have long 
felt that a work was needed which should give more promi- 
nence to the subject of money and currency than it has 
heretofore received. I have searched in vain for any work 
on Political Economy, domestic or foreign, which even 
attempted such a complete view of the monetary question, in 
all its bearings, as it appears to me to demand. Especially 
does such a work seem to be called for at the present time, 
when there are more conflicting views and wider differences 



viii PREFACE. 

of opinion among professors of economic science on this 
subject, and more popular ignorance and misconception, 
than on any other. To pass lightly over a matter so impor- 
tant, so interwoven with all the great interests of society, 
has seemed to me a great wrong to those who, as scholars, 
are expected to prepare themselves for active duties and 
responsible positions, and, as citizens, are to decide by their 
votes the financial policy of the country. 

In 1857, 1 endeavored, in a series of articles upon Politi- 
cal Economy, in the (New York) "Merchants' Magazine," to 
show the nature and effects of mixed currency, and its 
practical influence upon trade and industry. This, so far 
as I know, was the first attempt of the kind. These 
articles, in connection with other matter appertaining to the 
same subject, were published in pamphlet form in December 
of that year.* In 1859, a small but excellent work on Politi- 
cal Economy appeared, from the pen of Professor Bascom, 
of "Williams College, presenting the currency question with 
great correctness, but with such brevity as not, in my view, 
fully to meet the wants of the public. Within the present 
year, and since this work has been mostly in manuscript, a 
manual has been published by Professor Perry, also of Wil- 
liams College. It is a work of great merit ; the chapter on 
Foreign Trade being the most able essay iipon that subject 
which has fallen under my observation. The work contains 
sound views in regard to currency, and a more extended 
discussion than any that has preceded it ; yet it does not 
give so full analysis as I had already prepared, such as it 
seems to me one work, at least, should contain. 

* Walker on Money and Mixed Currency, 83 pp. 



P E E F A C E. IX 

And here I would recognize the earnest and efficient 
labors of William M. Gouge, of Philadelphia, who published 
in 1841-2 " A Journal of Banking," and subsequently " A 
Short History of Paper Money," in both of which he pre- 
sented an immense array of facts, statistics, and arguments, 
calculated to awaken inquiry. He was the pioneer in the 
great work of calling public attention to the effects of such 
a substitute for money ; and his labors are appreciated in 
this country and Europe, by those acquainted with Ms 
writings. 

Nor would I fail to acknowledge the valuable services 
rendered to this department of the science by a profound 
student and able writer in our public journals, over the sig- 
nature of " Bullionist," whose untiring efforts have done 
very much to diffuse correct ideas in regard to the nature 
of money and currency. 

I presume many persons will feel that a larger space has 
been given to currency than properly belongs to it. To this 
I can only reply, that nothing is inserted not deemed rele- 
vant and essential to a complete understanding of the 
question at issue, in all its relations. Statistics, facts, and 
diagrams have been introduced to substantiate the princi- 
ples announced, and impress their truthfulness. 

It may be thought, that too many and too minute details 
have been given in regard to trade and business affairs ; but 
experience has shown me, that we cannot safely assume 
that the students of a college, or the masses of the people, 
are so well informed in regard to these matters as to make 
such explanations and illustrations unnecessary. 

Another motive that has influenced my mind in the 



X PREFACE. 

preparation of this volume has been the desire to produce 
a work especially accessible and useful to business men, 
merchants, manufacturers, &c. They have a deep and 
immediate personal interest in all economical questions, and 
need particularly to be fully informed of the character of 
that instrumentality by which exchanges are made, and 
obligations discharged. They are not prepared for the 
responsibilities and hazards of their several callings, unless 
they fully comprehend the causes which operate to increase 
or depress trade, to assure or endanger credit, to expand or 
contract currency. Political Economy may be considered 
as emphatically a business science. 

But, while a knowledge of the laws of wealth is especially 
desirable and useful for particular classes and professions, 
it is obvious that the masses of the people should have an 
intelligent understanding of its principles, In a country 
where suffrage is universal, every man is virtually a law- 
giver. His opinions will influence his action in his choice 
of those who are to decide the policy of the government, 
which will be but the general expression of the popular will. 
Every man has his ideas of currency, trade, and finance ; 
and, however imperfect or mistaken, they influence his polit- 
ical action. Hence the great desirableness of a general 
diffusion of sound views upon all questions appertaining to 
the economical interests of the country. 

That Political Economy is a science having nothing to do 
with morals or religion, nor in any way appertaining to 
human welfare, except so far as relates to the production 
and accumulation of wealth, is a common opinion ; but it 
may be fearlessly asserted, that no other science is so inti- 



P E E F A C E. XI 

mately connected with the destiny of the human race, in its 
highest and most enduring interests. Such has been the 
uniform testimony of those in the clerical profession who 
have given special attention to its teachings. Dr. Chal- 
mers, while he held the chair of Divinity in the University 
of Edinburgh, gave lectures upon Political Economy. In 
the preface to the volume he published upon the subject, he 
says, " We cannot bid adieu to Political Economy without 
an earnest recommendation of its lessons to all who enter 
upon the ecclesiastical profession." Rev. Dr. Bethune, in 
his address before the Literary Society of Yale College, 
1845, spoke of Political Economy " as that philanthropic 
science, which, next to the gospel, whose legitimate offspring 
it is, will do more than any thing else for the elevation and 
fraternization of our race." Bishop Whately was heard to 
remark, a short time before his death, that " no theological 
seminary should be without its chair of Political Economy." 
Agreeing fully with the opinions expressed by these emi- 
nent men, I have felt desirous, throughout the following 
work, to show how perfectly the laws of wealth accord with 
all those moral and social laws which appertain to the 
higher nature and aspirations of man. 

Taxation in all its forms, as imposed by national, state, or 
municipal authority, has received a large share of attention 
in this work. The great change that has taken place in the 
fiscal condition of the country, by which the different modes 
of raising revenue have become matters of the first impor- 
tance to every citizen, has been an inducement to enter 
more fully into details than usual with writers on the 
general science of public economy. The American system 



xii P E E F A C E. 

of taxation is more complex, perhaps, than any other, from 
the fact of its triple character; that on the part of the 
general government being both direct and indirect, while 
that by State and municipal authorities is, in the main, 
direct, upon property and polls. The National Debt and 
Public Finances occupy that position in the present work 
which their importance seems to require. The subject may 
almost be regarded as a new one in this country. 

References are made in this work to the writings of the 
late M. Frederick Bastiat. No author of the present age 
has done more to dispel popular delusions, and expose pop- 
ular sophisms, — especially in his own country, France. It 
would be well if his writings were more extensively read in 
this country ; and the republication of his " Harmonies of 
Political Economy " here would be a great benefaction to 
the public. 

We are already furnished with the valuable work of John 
Stuart Mill, who is undoubtedly the ablest of living writers. 
Though more especially adapted to European than American 
use in the application of economic principles, it is exten- 
sively read in this country. While the science of wealth 
is always and everywhere the same, it is equally true that 
certain subjects of which it treats have a more practical 
interest in one country than another; and, of course, the 
importance attached to different topics will be determined 
by that consideration. Pauperism, and the economy of the 
poor-laws, may be a matter of deep concern where a fright- 
ful proportion of the people are dependent upon public 
charity, but of little consequence where very few, as in this 
country, are found in that condition. It is for this reason, 



p E E p A c E. xiii 

that each community, while recognizing precisely the same 
economic laws, finds that the subjects to which they may be 
applied vary greatly in importance. 

I cannot claim for myself any peculiar qualifications for 
the work I have undertaken. Some twenty years of my 
early life were devoted to pursuits connected with the trade 
and manufacturing industry of the country, while a longer 
period has since been devoted to the study of the laws of 
wealth. A practical knowledge of business and banking 
affairs generally, and a most earnest and persistent search 
for the truth in all matters appertaining to my favorite sci- 
ence, are the only claims I have to the attention of the 
public. 

I should do injustice to my own feelings, if I did not 
acknowledge the valuable assistance of my son, General 
Francis A. Walker, late of the volunteer service of the 
United States, without whose aid it would have been nearly 
impossible, amid other avocations, to complete this work. 

A. W. 

North Brookfield, Mass., 1866. 



TABLE OF CONTENTS. 



BOOK I.— DEFINITIONS. 

Chapter I. — Character of the Science. — Distinguished from politics, 1. 
— The economical circle, 2. — Man's wants and nature's supply being 
constant, political economy a positive science, 3. — How far affected 
by legislation, 4. — Prejudices which retard its progress, 5. 

Chapter II. — Definition of Wealth. — Includes all articles of value, and 
nothing else, 7. 

Chapter IH. — Definition of Value. Objects of human desire, obtained 
by human effort, have value, and none else. Value is power in 
exchange, and nothing else, 8. — Illustrations, chiefly from F. 
Bastiat, 9. 

Chapter TV. — Distinction between Value and Utility. — One of kind, 
and not of degree, 14. — Material wealth assumed to be a good, 15. 
— Nature gives value to nothing, 16. 

Chapter Y. — Definition of Labor. — Services of slaves not labor, 18. 

Chapter VI. — Definition of Capital. — The labor of the past, 19, — 
Growth of capital illustrated, 20. 

Chapter YII. — Relation of Capital and Labor. — Should be competi- 
tors, not antagonists, 21. — Results of their hostility in France, 22. 

Chapter Vffl. — General Division of the Science. — Production, ex- 
change, 22. — Distribution, consumption, 23. 



Xvi CONTENTS. 



BOOK II. — PRODUCTION. 

Chapter I. — Forms of Production. — Transmutation chiefly work of 
agriculturist, 24. — Agriculture supplies men and materials for 
other industries, 25. — Includes mining and fisheries, 26. — Trans- 
formation chiefly work of manufacturer, 26. — Distribution of manu- 
factures, not so generally as agriculture, governed by the industrial 
genius of peoples, 27. — By territorial advantages; by great acci- 
dents, 28. — Manufacturers employ fewer laborers, but greater 
machine power, 29. — Transportation chiefly work of merchant, 29. 
— Where does the chemist belong? this division arbitrary; their 
forms generally united, 30. 

Chapter II. — Conditions of the Highest Production. — Division of 
labor; co-operation of capital; economic culture, 31. 

Chapter III. — Division of Labor. — Illustrated; does this saving of 
time promote indolence? 32. — How far carried in fact? 33. 

Chapter P7. — The Advantages of Division of Labor. — Increased dex- 
terity; better knowledge of business, 34. — Time saved in tran- 
sition ; invention facilitated, as in American manufactures, 35. — 
Individual abilities adapted to work; the weakest employed, 36. 
— Power of capital increased; manufactures concentrated; profits 
reduced, 37. — Apprenticeship shortened, 38. — Social development 
facilitated, and influence of laboring classes increased, 39. 

Chapter V. — The Limitations to the Division of Labor. — When the 
operation can no longer be subdivided; when interested personal 
supei-vision fails ; when the operations cannot be sufficiently local- 
ized, 40. — By the necessities of the seasons; for example, agricul- 
ture, 41. — Hence tendency of agricultural products to rise in price; 
division of labor applied to sciences and professions, 42. — Special- 
ties recommended, 43. 

Chapter VI. — The Disadvantages of Division of Labor. — Tends to 
enervate the laborer, 43. — This may be avoided, 44. — Lesson of 
the recent war ; tends to cramp and enfeeble the mind ; this com- 
pensated, in part, by the greater communicativeness, 45. — By the 
intimate connection of mental faculties, and by opportunities outside 



CONTENTS. 5V11 

of labor for culture, 46. — Tends to lower average of health, shorten 
life, and diminish reproduction, 47. — Table showing average of life 
in different occupations; inaccuracies in vital statistics, 48. — Check- 
ing propagation in cities not an evil; lessens the number doing 
business for themselves ; relation of this to the formation of character, 
49. — To the fairness of remuneration; to steadiness of employ- 
ment, 50. — The last disadvantage being removed by the mutual 
system in trade, insurance, fisheries, &c, 52. 

Chapter VII. — The Division of Labor (concluded). — Balance of re- 
sults in favor of extension of the principle, 53. — The mercantile 
theory, 54. 

Chapter VIII. — The Co-operation of Capital. — Capital is wealth 
employed in reproduction, 55. — Distinction between capital and 
wealth; capital comes from savings of labor, 56. — Fixed and cir- 
culating, 57. 

Chapter IX. — The Co-operation of Capital (continued). — No unpro- 
ductive capital, 58. 

Chapter X. — The Co-operation of Capital (continued). — The union 
of capital and labor effective when in just proportions ; labor to 
decide the amount, 60. — That amount varies in different coun- 
tries, 61.— What in United States? 62.— In Great Britain? why 
Ireland is so depressed, 63. — Can there be a surplus of capital? 
lesson from Genoa and Venice, 64. — Capital checked by luxury, 65. 

— Emigration of capital, 66. 

Chapter XL — The Co-operation of Capital (concluded) . — Its union 
with labor effective, again, when each is sure of its reward ; injustice 
the death of industry, 66. — Warning from France, 67. — From 
Spanish conquests ; from Asia ; again, when capital is well distribu- 
ted ; 68. — Limits to its aggregation; American error in regard to 
corporations; again, when there is freedom of industry, 69. — Mis- 
chief of multiplied restrictions ; work of politician impertinent, 70. 

Chapter XII. — Economic Culture. — Is the distinction between pro- 
ductive and unproductive labor real ? Adam Smith's list of unpro- 
ductive laborers, 71.— All labor productive, 72.— Examples, 73. 

— Economic culture concerned with secondary influences of produc- 
tion, the rebound from consumption, 74. — Here production touches 
consumption. 75. 



Xviii CONTENTS. 

BOOK HI.— EXCHANGE. 

Pakt I. — Trade. 

Chapter I. — The Principle of Trade. — Arises from division of labor; 
illustrated by savage life v 77. — Divided as domestic, carrying, and 
foreign, 78. — Its amount governed by surplus production, 79. — 
' Those trade most together whose productions differ ; kind of pro- 
ducts determined by soil, 80. — Climate, social condition, ethnical 
peculiarities; territorial division of labor, 81. — Has few limitations 
and no disadvantages, 82. — General principles of trade are neces- 
sity of surplus, community of interests ; that community often in- 
dependent of direct exchange, 83. — Largest production and best 
distribution effected by territorial division of labor; international 
unity secured; wars diminished in number, malignity, and dura- 
tion, 84. 

Chapter II. — Obstructions to Trade. — May be regarded as protection 
to local industry; protection from physical obstructions, 85. — 
Measured chiefly by bulk and weight ; diminished by improved 
transportation, 86. — But never annihilated, 87. — Protection from 
social obstructions; illustrated by American civil war, 88. — Legal 
protection; this of three kinds, — prohibition, bounties, imposts, 89. 
- Only necessary to discuss the last, 90. 

Chapter HI. — Protection. — May be for four causes, — revenue, to 
encourage home production, to support capital already enlisted, 
to secure commercial independence ; for revenue, considered ; a 
species of taxation, 90. — Should be governed by what shall be 
decided in regard to protection ; to encourage home production, 
considered; the battle-field of protection ; two propositions, 91. — 
Reducible to one, i.e. man's economic desires need government by 
law; that, false, 92. — Illustrated by American manufacture of iron; 
best example, for six reasons stated ; yet we do not produce success- 
fully ; why? not for want of knowledge, 93. — Nor of capital: 
business creates its own; nor of facilities and material, 94. — Im- 
portance of juxtaposition ; example from India ; nor of natural 
protection ; why, then ? we can do better ; superior profitableness of 
agriculture, 95. — Yet protection was applied, 96. — Effect? iron 
produced; a great loss to general production, 97. — Wasteful ex- 
periments, 98. — Excluded country suffers less than the protected, 



CONTENTS. XIX 

99. —Folly of anticipating agricultural glut; the natural growth of 
manufactures, 100. 

Chapter TV .— Fallacies of the Protection TJieonj.— That it is necessary 
to protect infant manufacturers, 101. — Answer, this protects good 
and bad alike, and encourages the birth and growth of worthless 
enterprises ; the infant may cost more than the man will be worth ; 
example, beet-root sugar in France, 102.— That it will protect us 
against the pauper labor of Europe ; answer, this system started the 
immigration, and has continued it, 104. — That it raises the average 
of profits, which is simply absurd, 105. —That manufacturing coun- 
tries are, somehow, richer than agricultural ; answer, they are older, 
105. — Besides, only those are richer which have taken to manufac- 
tures by reason of natural adaptations, 106. — Manufactures, to a 
certain extent, arise by natural protection in every country; to 
attempt more than this is simply waste of power, 107. — That it is 
necessary to develop our resources; answer, American labor has 
always been fully occupied, and, when let alone, in the most profitable 
business ; it can do no more by force of law ; our ores will not spoil 
by waiting, 108. 

Chapter V .— Protection (continued) . — Have discussed two reasons 
given in chap. iii. ; next, to support existing manufactures, on the 
ground of justice ; answer, not a question of economy ; better, how- 
ever, to pay outright for them than repeat and continue mistakes by 
false legislation ; allowing all the protectionist claims, protection is 
an absurdity in American politics, 109.— Fourth reason, to secure 
independence ; answer, simple barbarism ; rejoinder, it is necessary 
to safety in war, 110. — Examined and found untrue, 111.— Final 
claim of the protectionist, retaliation ; found to be more injurious to 
the protected than the excluded, 1 12. — French treaty of Mr. Cobden, 
113. — The natural industry of the United States is agriculture; 
some sections would manufacture without protection, as they began 
to do, 115. — " Let us alone," the policy of trade, 115. — Was the 
original policy of New England; protection the disease of in-, 
dustry, 117. 

Chapter VI.— Balance of Trade.— The true state of trade cannot be 
ascertained by inspection of official returns ; the profit of exporta- 
tion and importation generally make the difference between an adverse 
or favorable trade; our foreign trade in 1863, 118.— Frauds at 
Custom House sufficient to change the balance from one side to the 
other, 120. 



XX CONTENTS. 



book m. 

Part II. — Instruments of Exchange 

Chapter I. — Barter and the different forms of Currency. — Three in- 
struments of exchange, viz. barter, currency, different forms of 
credit; difficulties attending barter, 121. — A currency wanted to 
act as a medium of exchange, 122. — And as a standard of value ; 
requirements of such a standard, 123. — Currency of four kinds, 
viz. money, credit, mixed, and mercantile currency, 124. 

Chapter II. — Money. — Forms used in different ages and countries, 
126. — Advantages of gold and silver; possess value, are stable in 
value, 127. — Conveniently portable, malleable, of uniform quality 
everywhere, can be readily alloyed or refined, are indestructible by 
accident, generally diffused, sufficiently plentiful for trade, 128. — 
And nearly inconsumable by use, 129. — Coinage, its advantages, 
130. — United States Government seigniorage, 130 ; government gives 
no value to coin, only certifies weight and fineness, 131. 

Chapter III. — Credit Currency. — Transfers debts, does not pay them ; 
inevitably at a discount ; folly of gold bill by Congress, 132. — Occa- 
sions rise of prices ; effect on United States during Rebellion ; 
depreciates fixed incomes and real estate, 133. — Vitiates contracts 
(see American Revolution and Rebellion), 184. — Never kept to the 
natural volume of currency; seldom paid, 135. — In effect a forced 
loan ; a direct tax, 136. — Government does not get full value, 137. — 
Loss to United States during late war from use of credit currency, 138. 

Chapter IV. — Mixed Currency. — A modern invention; Bank of 
England, 138. — Composition ; called mixed, because consisting of 
value and credit ; its quality the proportion between the two ele- 
ments, 139. — Convertibility distinguished from redeemableness, 140. 
— Inconvertible currency annihilated by being redeemed; analysis 
of bank returns ; definition of terms, 141. — Bank balances the most 
dangerous element ; agency in suspension of banks of New York and 
Bank of England, 142. — Resources of banks ; definition of terins, 
144. — What the source of profit? motive power in expansion, 145. — 
Quality of the United States currency 1860, 146. — Grand problem 
of banking, 147 



CONTENTS. XXI 

Chapter V.— Analysis of Deposits.— Already defined; arise in five 
ways, 148. —May be classified as compulsory, fiduciary, and active ; 

• the first kept to secure discounts, 149.— Highly dangerous to the 
currency ; not known in England, as there are no usury laws, 150. — 
Other kinds legitimate; are deposits currency? opinion of Lord 
Overstone, 151. — Of New-York Board of Currency; they are as 
much an instrumentality of exchange as bank-notes, 152. — Indeed, 
more active ; stocks not immediate resources to a bank ; cannot be 
realized in panic or pressure, 153. 

Chapter VI. — Mixed Currency, Fluctuations in Quantity and Quality. 
— We have two great questions: 1st, does mixed currency perform 
satisfactorily the functions of money ? 2d, what its effects upon public 
interests ? 154. — Only one of these at present (see chap, x.) ; mixed 
currency not governed by laws of value, bec«ause it has not value ; 
can be increased without labor, and mus* be withdrawn for reasons 
not affecting articles costing labor, 155. — Expansion always in ex- 
cess, because it creates speculation and a feverish demand, 156. — 
Because, also, banks are interested to crowd it out ; contraction takes 
place from any cause which affects credit ; hence without regard to 
laws of value, 157. — Export of specie withdraws only its own amouut 
of value currency, but of credit currency that amount multiplied by a 
factor expressing proportion of credit to value, 158. — Sound banks 
no'better than unsound in panic ; movement of expansion begins with 
the banks, not from want of trade, 159.— Tides of business need 
not be ruinous, 160. 

Chapter Vn. — Tables and Diagrams of Mixed- Currency Fluctua- 
tions. — Table I., in absolute quantity, United States, 1834-59, 161. 
— Diagram 1, in currency and proportion of specie per capita, same 
period; Table H., extremes of fluctuation, currency United States per 
capita, and quality of same, 1834-59, 162. — Table HI., quality of 
currencies in the several States, 1860 ; Table IT., of currency of Mas- 
sachusetts, different dates ; currency of New England a unit under 
Suffolk system, 163. 

Chapter VIII. — Mixed Currency as a Medium of Exchange (see chap, 
vi.). — Two offices of such a medium ; to transfer commodities, 164. 
— Mixed currency satisfactory for this ; to discharge indebtedness , 
coin always reliable, 165. — The best trader cannot rely on mixed 
currency, for it may be withdrawn when his obligations mature, 166. — 
He must fail ; credit not reliable for money, 167. — Dilemma of banks 
in panic ; they choose suspension, 168. 



XX11 CONTENTS. 

Chapter IX. — Mixed Currency as a Standard of Value. — Vast impor- 
tance of this function, 169. — Denial by some of a standard; answer, 
170. — Legal tender, what? 171. — The fluctuations shown in 
tables and diagrams prove mixed currency to be unjust and mis- 
chievous as a standard, 172. — Immense transfers of value without 
an equivalent, 173. — Extract from "North-American Review;" 
Price, what is it? 174. — Distinction between price and value, 175 
— Illustrated from Confederate States, 176. — Table V., average price 
often commodities for twenty-six years, 177. — Diagram 2, corre- 
spondence of prices and currency circulation, except as explained by 
law of speculations, 179. — Cotton and Hour omitted for reasons after 
given ; these calculations per capita ; these fluctuations greater thab 
possible with value currency, 180. — Effect on former illustrated, 
181. — Who gains by all this? not the laborer, 182. —What is 
gained ? only price ; who gains it ? debtor or creditor, as the case 
may be ; distinction between general and special prices, 183. 

Chapter X. — Effects of a Mixed Currency (see chap. vi.). — 1st, En- 
dangers domestic tranquillity ; puts the finances at the mercy of a 
faction, 184. — Currency of Massachusetts, Diagram No. 3; sav- 
ings banks complicate the matter, 185. — Elements of our population 
make this highly dangerous, 186. — 2d, Demoralizes society and 
industry, by exciting to speculation, enriching without merit, and 
ruining without blame, 187. — 3d, Endangers national safety in war, 
187. — Obliges a nation to carry on war with broken-down currency ; 
England against Napoleon ; United States in great Rebellion, 18S. — 
If any gain can be made by substitution of credit, it should be 
reserved till the emergency, 189. — 4th, Discourages domestic manu- 
factures, and puts a nation at a disadvantage in commerce, 191. — 
Has always neutralized our tariff, 192. — Distresses of American 
manufactures due to the currency; popular error, that high duties 
restrict importations, disproved by Diagram 4 ; want of corre- 
spondence in two lines, 193. — Another cause needed; Diagram 5 
shows relation between currency and imports ; exact correspondence, 
195. — Extract from " Bankers' Magazine," 186. 

Chapter XI. — Effects of Mixed Currency {concluded). — 5th, Disturbs 
and enhances interest, 196. — This the natural result of its raising 
prices and increasing indebtedness, while itself falls away at the 
moment of need ; Diagram 6, 197. — Frequent and extreme fluctu- 
ations ; highest interest with greatest expansion ; lowest with least 
currency, 198. — Interest in United States and Great Britain com- 
pared 199. — Table VI., fluctuation in interest, United States and 



CONTENTS. XXU1 

Great Britain, 1844-58, 200.— Table VII., fluctuations at Bank of 
England, 160 years ; effects of great revolutions indicated, 201. — 
Currency of Great Britain compared to that of the United States as 
to circulation and deposits ; superior quality of British, 202. — Irish 
and Scotch currency ; estimated specie in United Kingdom ; numerous 
failures in Scotland, 203. — Failures in United States; British bank 
reserve; Table VIII., fluctuations in bank reserve, 204. — Diagram 
No. 7 ; effects of mixed currency on American agriculture ; its pro- 
ducts sold at gold prices, while the farmer purchases at currency 
prices, 205. — Table IX., price of wheat and flour from 1846-59, with 
currency ; compared with general prices (see chap, ix.) ; no corres- 
pondence ; suffering of Western farmers, 206. — Interest of the West 
for value money, 207. 

Chapter XII. — Fallacies regarding a Mixed Currency. — 1st, That it 
increases capital, 207. — Credit not capital ; 2d, that it cost less than 
money, 208. — Instruments, to be cheap, must be efficient ; mixed 
currency is not ; cost of value currency, 209. — Damage of mixed 
currency estimated ; greatly exceeds the saving, 210.— Gold circu- 
lates itself; mixed currency requires machinery and great expense to 
keep it out, 211. — Adam Smith's figure, and comments; 3d, that it 
has caused the prosperity of the United States, 212. — No grounds 
for the supposition ; 4th, that there is not gold and silver enough ; 
absurd since discovery of Australia and California, 213. — Never 
was true ; much gold never used as money ; amount used in United 
States not greatly increased by yield of California, 214. — Has been 
exported ; quotation from J. S. Mill ; 5th, that it is favorable to young 
men, 215. — Particularly injurious to them, enhancing the risks of 
credit, which they especially need ; 6th, that we could not have banks 
without it, 216. — Banking may be profitable without ; illustrated from 
British joint-stock banks, 217. — Do not object to banks, but only to 
manufacture of currency, 218. — Banks used to be safe and bene- 
ficial ; Bank of Hamburg ; 7th, that it can be regulated by law ; 
the only cause of the evil is want of value ; the only cure, to supply 
that; no remedy but revolution, 219. — 8th, That banks ought to 
"stave off " suspension ; suspension the only relief the public can 
have ; is a wrong, but one included in the original wrong of fictitious 
currency, 220. — 9th, That at least stockholders are enriched by ex- 
pansion ; not always or generally, 221. — How stockholders maybe 
affected, 222. — Nothing but price gained, and that unjustly and to 
the prejudice of one party ; it is swindling, 223. 



Xxiv CONTENTS. 

Chapter XIII. — Mercantile Currency. — A substitute for the precious 
metals ; combines reliability with the convenience of paper ; not a 
novelty, 224. — First substitute currency; Bank of Genoa, bills based 
on full specie ; Bank of Amsterdam, 225. — Bank of Hamburg ; Eng- 
land needs such a currency, 226. — English finance continually 
disturbed, and millions of annual loss involved, for a paltry saving ; 
United States still worse, 227. — The change of currency easy to 
effect; issue of small notes, 228. — Amount of paper money required 
in United States; legitimate banking profitable, 229. — Needs no 
legislation ; transition easy ; some banks would be superseded ; bank- 
ing should be free, but not the manufacture of currency, 230. — 
Government should furnish a certified currency, 231. — This would 
not give the government any control over the currency, 232. 

Chapter XIY. — The National Currency of the United States. — Differs 
from the old system ; is under national control ; ultimate redemption 
of notes secured, 233. — Legal tender; uniform value through the 
States; provision made for banks holding "lawful money" with 
which to redeem, 234. — Last provision frustrated by allowing 
" balances " to be counted ; these banks have no capital to lend, 235. 

— Resembles the old system in liability to expand and contract; fur- 
nishes a standard of value equally delusive ; raises prices and creates 
speculation : extends credit ; increases iuqjorts ; counteracts protec- 
tion, and discourages home manufactures ; will continue to cause 
stringency and panic ; guaranty of ultimate redemption no security 
against a "run," 236. — Operations of the new system ; where the 
profit is made, 237. — Quality of the new currency, 238. — Illustrated 
from an individual bank, 239. — New system better, as more suscep- 
tible of reform, 240. 

Chapter XV. — Evidences of Debt. — Three kinds ; book accounts, 240. 

— Ex parte, and not negotiable ; notes ; bills of exchange, 241. — Il- 
lustrated ; exchange, foreign and domestic, 242. — Great saving of 
expense; indirect exchange, 243. — Foreign exchange illustrated, 
244. — Saving calculated ; indirect foreign exchange illustrated ; 
trade of United States 1857, 245. — Natural rate of exchange, 246. — 
Exchange the barometer of trade ; rate of British exchange explained ; 
value of the pound sterling, 247. — Expense of shipping gold, 248. — 
Rectification of the legal value of pound sterling ; are bills of ex- 
change currency? do not pass from hand to hand, 249. — Are them- 
selves discharged by currency ; are generally on time ; not proper 
tender; if dishonored, do not reduce amount of currency, 250. — Do 
not affect prices ; their scarcity cannot create panic, therefore not 
currency, 251. 



CONTENTS. XXV 



BOOK IV.— DISTRIBUTION. 

Chapter I. — Divisions of the Subject. — Distribution arises out of divi- 
sion of labor, 252. — Labor, physical, mental, and subsidiary, all 
receive wages ; capital loaned in two forms, one receiving interest, the 
other rent, 253. — Government claims a share ; we have therefore to 
provide for wages, profit, interest, rent, and taxation. 

Chapter II. — Wages. — Governed by laws of value ; vary in different 
countries and ages, 254. — Importance of freedom and equality in 
securing fair wages; necessary wages, 255. — Wages depend on 
business enterprise ; distinction between real and nominal wages ; 
illustrated, 256. — Facts in point, 257. 

Chapter III. — Proportionate Rise and Fall of Wages. — Do not rise 
so soon or high as commodities generally ; reason, no speculative 
demand ; fall sooner ; difficult to ascertain rise or fall of real wages ; 
unquestionably have a tendency to advance ; 1810 compared with 
1860, 259. — Difference from character of employments; danger; 
disgrace, 260. — Unhealthy trades; compensation should be made; 
agricultural wages, for this reason, lowest of all, 261. — Education of 
the laborer ; makes him more efficient, and commands a reward ; fru- 
gality of the laborer; makes him independent, 262. — Neutralizes 
the advantage of the employer ; distinction of sex influences wages ; 
rate of difference, 263. — Equality of numbers; industrial sphere of 
woman closely circumscribed ; her products more dispensable ; hence 
inferiority of compensation, 264. — Cannot be increased by mere phil- ' 
anthropic efforts ; change must be effected on economic principles ; 
her occupations must be increased, 265. — Another classification of 
wages, paid respectively for physical, mental, moral power, 266. — 
Gradation of wages on this plan ; economical importance and value of 
integrity; high rewards, 267. — Objected, confounds moral and eco- 
nomical philosophy ; answer, they do meet, and this ground is 
common to both, 268. 

Chapter IV. — Labor Combinations. — Laborers have same right 
to combine as capitalists ; friendly associations of England, 269. — 
Their agency; official registration; moral influence, 270. — Trades' 
unions ; lawful, but no coercion may be employed within or without 
these unions, 271. — Strikes lawful within the same restrictions, 272. 



XXvi CONTENTS. 

— Do not permanently raise wages ; freedom, intelligence, and virtue 
must do this, 273. — Co-operative associations ; account at length by 
Professor Fawcett, 274. 

Chapter V.— Profits. — The remuneration of the business man, 279. — 
Must not be confounded with interest, wages, or rent, 280. — The 
forms may be united ; freedom necessary to secure fair profits, 281. — 
Profits of capital an inaccurate term, 282. — Rate of profit tends to 
decline, from acceleration of exchanges, increasing competition, and 
more rapid intercourse ; difference in rate of profits in same commu- 
nity, 283. — Rapidity of exchange ; its effect on profit illustrated, 284. 

— Profits large in new countries; Western States of America; prof- 
its governed by demand and supply, 285. — Tendency to reduce 
profits further discussed ; effect on profit of temporary rise of wages 
illustrated, 28G. — Dividends, how classified ? 287. 

Chapter VI. — Interest. — Reward of circulating capital ; justified by 
right of property, 228. — By human wants ; interest dependent on 
productiveness of labor, 289. — Governed by demand and supply ; abo- 
lition of British usury laws; usury laws ineffective, 290. — Increase 
expense of borrowing, by danger and secrecy of transaction ; create 
fictitious exchange, 291. — Create compulsory deposits; interest 
still further influenced by hazard of capital ; this depends on honesty 
and thrift of a people, and efficiency of laws affecting property ; 
interest influenced by unsoundness of currency, 292. — Illustrations 
from Europe and America ; legal rate should be fixed in the absence 
of any agreement, 293. 

Chapter VII. — Rent. — Reward of fixed capital; not of great impor- 
tance in United States ; implies ownership ; implies society, 294. 

— Land the foundation of rent ; does not appear in hunter or 
shepherd state ; begins with agriculture, 295. — Location the first 
element ; rent would appear though there were enough land for all, 
with no difference of quality; illustrated, 29G. — Fertility the second 
element; illustrated, 297. — Cost of importation, third element; 
illustrated from Great Britain ; application of capital, fourth element ; 
not proportionally productive in all cases, 298. — Great extent of 
European improvements ; land appendages ; do not sell for cost, 299. 

— Reason, difference between West and East, 300. — Improvements 
become gratuitous ; city rents generally on level with interest, 301. 

Chapter VIII. — Wages, Rent, Interest, and Profits, as relatively af- 
fected by Currency Inflation* — Not affected in equal degree ; wages did 



CONTENTS. XXvii 

not rise in 1864-5 as prices did, 302. — Rents advanced little, interest 
somewhat, but not as high as profits ; state of things illustrated, 303. 
— The laborer loses ; the business man gains, but not so greatly as 
supposed; is, however, the only party who gains at all, 304. — Ex- 
cept speculators ; loss on all fixed incomes, 305. — Facts of the war 
hold to a degree in all expansions. 

Chapter IX. — Principles of Taxation. — Necessity of government ; it 
receives revenue ; by taxation, 306. — Importation in United States ; 
must be just and equal in a free country, 307. — Government own a 
share in every product, has a lien on every article of value ; principles 
of taxation propounded by Adam Smith ; first, equality of contribu- 
tion, 308. — Explained and illustrated; second, taxation must be 
certain and plain, 309. — Third, convenience of payment to be con- 
sidered ; fourth, economy ; how the last principle may be violated ; 
by great machinery of collection, 310. — By disturbing industry ; by 
encouragement to smuggling ; by interruptions and vexatious visits ; 
a fifth principle proposed, taxation of mischievous consumption ; 
forms of American taxation, 311. — National; State; taxes divided, 
as direct and indirect, 312. 

Chapter X. — National Taxation. — 1. Customs; duties of two kinds, 
specific and ad valorem; American policy has fluctuated, 312. — 
Specific duties unjust;- ad valorem create fraud, and so far defeat 
revenue, 313. — Customs as a mode of taxation ; easy and effective ; 
a tax on consumption without reference to ability, therefore unjust ; 
not clear and plain to the contributor, 314. — Moreover, as they 
raise the value of the home product, government gets only a small 
part of what the people pay; illustrated, 315. — Example of taxa- 
tion laid on articles not of home production ; customs expensive 
on account of the machinery, 316. — Additional estimates showing 
expense of raising revenue by customs, 317. — Bounties preferable 
for protection to customs, 318. — Excise as a mode of taxation ; un- 
equal, like customs ; not so expensive ; more vexatious, 319. — Taxes 
on disadvantageous consumption ; eminently desirable ; revenue in 
Great Britain thus obtained, 320. — Stamps, cheap, efficient, unequal; 
licenses desirable, 321. 

Chapter XI. — National Taxation (continued). — Income tax; only 
perfectly just principle ; established in Great Britain ; in United 
States, 322. — Should be no exemptions as to persons or amount; 
difficulties alleged ; people do not know their income ; answer, should 
know, and will learn ; some are dishonest ; answer, every year in- 



xxviii CONTENTS. 

creases difficulty of fraud ; should be put on oath, 323. - Do not like 
to have income known ; answer, all are copartners in taxation, and 
the contribution of each ought to be known ; income deferred must 
be estimated, 324. — Taxation of exports reduces power in com- 
merce, e.g. wheat, 325. — Effect shown; except where there is a 
virtual monopoly of product, 326. — This we have in cotton ; universal 
demand, 327. — Restricted culture; United States control the pro- 
duction ; production constantly increasing ; price advancing simulta- 
neously ; yield in United States different years, 328. — Value of crop ; 
limited export duty would not curtail the market, 329. — Amount of 
revenue yielded ; cotton capacity of United States, 330. 

Chapter XII. — State Taxation. — Is direct ; increased by rebellion ; 
method of; false position of poll-tax payers, in regard to appropria- 
tions and expenditures, 332. — Income-tax would remove the diffi- 
culty ; poll-tax unreasonable in itself, but tolerated as part of a 
system, 333. — Burden thrown on property ; effect on small farmers 
unjust and mischievous, 334. — Great disparity of taxation ; ad- 
vantages which the poll-tax payer derives from government, 335. — 
Return made for these ; effect of State and national system com- 
bined ; affect each other's injustice, 336. — Apportionment of national 
taxation among States considered ; cheaper, if the States could 
not be relied on ; taxation of credits ; propriety has been questioned, 
337. — Matter discussed ; this liability, being known, has entered as 
an element into all purchases, 338. — Income-tax would avoid all 
injustice ; as it is, credit should be taxed ; taxation of government 
bonds; importance of the question, 339. — Proportion of national 
debt to estimated wealth ; large amount of income exempted ; better 
pay higher interest, 349. — Such exemption diminishes the operation 
of frugality ; consolidation of national debt; proposition in Congress, 
341. — Desirable, but no exemption from taxation should be allowed; 
such exemption separates the rights of voters from their responsibili- 
ties ; creates a mischievous class, 342. — Unjust for national authority 
to limit, in this way, the control of State and town authorities over 
property ; creates inequality ; will create an interest against the pay- 
ment of the debt, involving endless taxation ; particularly unjust to 
certain sections, 343. — Absorbs too large a proportion of the wealth 
into the debt, as our bonds will be returned in consequence from 
Europe ; entirely unnecessary now ; never was good policy ; wisdom 
of British financiers in Napoleonic wars, 344. — If wisely managed, 
our debt need not burden the country excessively ; a consolidation 
should be effected, but not in a single issue ; proposed sinking fund 
considered, 345. 



CONTENTS. XXIX 

Chapter XIII. — Foreign Indebtedness. — 1st, Economy of foreign in- 
debtedness ; of four kinds, individual, corporate ; these may be 
enforced by law, are of great extent ; State, 346. — National ; no 
legal remedy for these ; amount already sent abroad ; 2d, exporta- 
tion of public stocks considered ; desirableness depends on return 
made, 347. — Exporting stocks regarded as extending mercantile 
indebtedness ; the return will depend much on condition of the 
currency, 348. — Disadvantage at which stocks are now exported; 
tariff will not help it, 349. — The remedy should be applied to the 
currency ; rapid depletion of the United States ; objection to foreign 
indebtedness ; debtor cannot choose his creditor, 350. — Makes no 
difference who the creditor is ; we should be glad to have the use of 
foreign capital ; errors of financial management during the rebellion ; 
wisdom of the Confederate loan, 351. — Our debt can be cheaply 
negotiated abroad, if rightly put out ; can make no operations advan- 
tageously under an expanded currency ; indefinite fear that foreign 
indebtedness endangers a nation, 352. — The danger is to the party 
owning, not the party owing, the debt ; no evil can arise from this 
source ; fallacies respecting a national debt ; Mr. Jay Cooke's first 
proposition, 353. — Tf " our debt is so much added to our wealth," 
the war was a financial blessing ; nobody is richer, the govern- 
ment is three billions poorer ; the wealth which the debt represents 
has been spent in war, 354. — If debt is wealth, repudiation would 
destroy wealth; not so; again, " debt is active capital;" govern- 
ment debt, like individual, can be hypothecated to obtain capital, 355. 
— Again, it " gives stability to government; " government depends on 
the satisfaction of the people ; France has large debt, yet undergoes 
repeated and violent changes ; but " every government creditor is in- 
terested in the stability of the nation ; " who holds the debt ? not one 
citizen in fifty holds enough stock to make his interest from it so large 
as the taxation it imposes, 357. — Illustrated, 358. — The debt will be 
a source of discord and faction ; again, " it insures protection to home 
industry," 359. — England has a large debt, and has repudiated pro- 
tection ; again, " it is a desirable basis for banking ; " debt is no basis 
for sound banking ; again, " the generation contracting is under no 
obligation to pay; " this simply enslaves posterity, 360. — But nations 
must sometimes create debts;" very rarely, 361. — Ours should be 
paid within the century, 362. 

Chapter XIV. — Rise and Growth of the Modern Financial System. — 
no large national debt ever paid ; William III. of England author of 
modern system ; his war with France, 363. — Disadvantages of former 
kings of England ; William established a regular scheme of borrow- 



XXX CONTENTS. 

ing ; incorporated Bank of England to manage the debt ; established 
land-tax, 364. — Also indirect taxation; results of the new system; 
unlimited credit ; all check on war expenditures removed, taxation 
transferred to the poor; the aristocracy conciliated, 365. — Progress 
of British national debt, 366. — Diagram of the British national debt; 
the bank grows up with it, 367. — Advantages and mischiefs of indi- 
rect taxation, 368. — Fruit of this policy; extension of war system; 
increasing indebtedness all over the civilized world ; impoverishment 
of tho masses ; such a debt throws taxation on the productive classes, 
371. — Altered condition of the United States, 371. 

Chapter XV. — On the Laios of Inheritance and Bequest. — To whom 
does the world belong, the living or the dead? 371. — It is a concern 
of government ; Mr. McCulloclfs argument ; the world belongs to 
the living, 372. — Laws entailing property established in certain coun- 
tries, 373. — Wealth tends to pass out of the hands of a family or 
class, 374. — This liability of the rich is the property of the poor; 
to contravene it by law is to rob them ; the laws of primogeniture and 
entail ; their rightfulness ; subsistence secured to man only in his 
powers of industrial appropriation, 375. — Analogy of nature ; defeat 
his right to appropriate by making property inalienable, and you de- 
prive him of subsistence, 376. — Expediency of such laws ; entailed 
estates generally too large for economic well-being ; monopoly of 
wealth and monopoly of wives, 377. — Diminish the industrial de- 
sires ; draw off wealth to luxury, 376. — Come to men incompetent 
to administer them, 379. 



BOOK V. — CONSUMPTION". 

Chapter I. — Divisions of the Subject. — Destruction of wealth not a 
subject for science; consumption the use of wealth, 380. — Illus- 
trated, 381. — Upon consumption depends reproduction; the acts of 
consumption often cannot be defined or even detected, 382. — Not 
the less real ; relations of production, exchange, distribution, and 
consumption illustrated ; consumption divided as mistaken, luxuri- 
ous, public, and reproductive. 

Chapter II. — Mistaken Consumption. — Capital applied for reproduc- 
tion without result ; frequent failures of industrial enterprises, 383. 
— Secondary uses of such failures, i.e. railroads, factories, &c, 



CONTENTS. XXXI 

884. — Large proportion of industrial misadventures ; why ? capital 
fallible ; extravagance in outlay ; great accidents or developments, 
385. — Wealth unproductively applied is not capital ; is waste or 
luxury, 386. 

Chapter III. — Luxurious Consumption. — What is luxury? 386. — 
General formula ; standard varies with classes, countries, and ages, 
387. — Direction varies with individual taste; do luxuries directly 
encourage industry? illustration, 388. — Encourages one class to 
discourage another ; capital thus spent pays less wages than that 
employed reproductively, 389. — Do they indirectly encourage indus- 
try ? the desire to spend is the origin of the desire to gain ; great 
economic importance of this ; this influence of luxuries increased by 
their general diffusion, 390. — Only temperate and harmonious con- 
sumption of wealth in luxury encourages industry ; place of morality, 
391. 

Cpiapter IV. — On the Degree of Luxurious Consumption. — Luxuries 
not confined to the rich ; an extent of necessary wages, 392. — 
French and English workmen compared ; popularization of luxuries, 
393. — Relative consumption in luxury by different classes in Great 
Britain; historical examples of luxury, 394. — The causes of luxu- 
rious consumption, a surplus, preponderance of desire to spend over 
desire to gain ; this influenced by security and profitableness of capi- 
tal ; extent to which luxury can be carried ; Gibbon's theory, 395. — 
Modifications of this ; no certain proportion for all nations ; idleness 
as a luxury, 396. — Of learning and art ; have value ; their price 
varies, 397. — Quantity of labor bestowed on them governed by sup- 
ply and demand : effect of such consumption, 398. — Sumptuary 
laws; supported by urgent reasons, 399. — Found impracticable; 
causes, 400. — Violations not easily proved ; against human nature ; 
laws in the interest of morality should be sustained, 401. 

Chapter V. — Public Consumption. — Economical reason for govern- 
ment, 401. — Right to participate in consumption ; share ? 402. — 
Government should take nothing from individual enterprise ; anec- 
dote, 403. — Government should do nothing for display; historical 
instances of frugality ; progress in this direction ; expense of gov- 
ernment varies with circumstances and character, 404. — Expendi- 
tures of European nations; of United States, 405. — Does public 
consumption encourage industry? if unnecessary, it is only charity, 
requiring great expense beyond the help given to the poor, 406. — 
saves self-respect, entails burden on the future ; if necessary, public 



XXxii CONTENTS. 

does not get full value of the outlay, 407. — Government never 
operates successfully ; some duties must be undertaken directly by 
government; these occasions few and definite, 408. — Disadvantages 
of government consumption ; seldom needed by the people ; perpet- 
uates dependence ; demoralizes industry ; induces political corruption, 
409. — If government expends at disadvantage when necessary, it 
should not go beyond its strict occasions ; expenditures of United 
States in recent war not economically advantageous, 410. 

Chapter VI. — Charity and Poor-Laivs. — Field of this agency ; 
restricted by family relation, 411. — Constituents of the class 
needing support; statistics of pauperism, 412. — Not very impor- 
tant in United States ; what classes entitled to charity ? all who 
require it ; the vicious ? Roman cruelty ; Christian law, 413. — 
Who should administer charity; may oe most judiciously and 
economically done by private hands, 414. — Mutual -relief soci- 
eties another and advantageous mode of charity ; such agencies 
extensive in Europe and the United States, 415. Christian 
scheme of the Quakers or Friends, 415. — All these methods 
insufficient, and the State must engage in the work, 415. — By what 
branches of the government ; to what extent ; two English methods ; 
allotment of land and parish allowance, 416. — Failure of this sys- 
tem; to what extent poor-laws may be effective, 417. — Able-bodied 
workmen as paupers, 418. — Pauperism of England, 418. — In what 
form should charity be administered? 418, 419. — How government 
should furnish charitable assistance, 420. — In what spirit charity 
should be dispensed, 421. 

Chapter VII. — The Finance of War, 422. — Fallacy that more money 
is wanted in time of war than in peace ; evil effects of this ; govern- 
ment becomes the greater operator in war, and changes the 
direction of industry, but does not increase production ; war a 
business as truly as agriculture, and needs similar resources, 
materials, provisions, and services, 422. — "Raising money" no 
more necessary in time of war than peace, 423. — Except for obtain- 
ing foreign assistance. 

Chapter VIII. — Economy of the War System, 425. — War the greatest 
fact in public consumption ; not accidental ; consisting of (1) a per- 
manent military and naval force ; (2) constant preparations ; (3) large 
national indebtedness; British statistics in proof, 426. — Statistics 
of European armies; muster roll of the British army, 427. — State- 
ment of national debt of each European power, 428. — Small pro- 



CONTENTS. XXX111 

portionate amount required for civil service in Great Britain, 428. — 
Rapid increase of war expenditures ; statement of Mr. Gladstone, 429. 
— War expenditures must be greatly increased by the revolution in 
naval warfare inaugurated in the United States during the Rebellion ; 
the "Merrimack" and "Monitor," 430. — Questions whether new and 
improved ideas of international intercourse are not quite as desirable 
as new engines of human destruction, 431. — Condition of the United 
States, 431. — Modern war debts will never be paid until the war 
policy of nations is changed, 432. — Is war a moral necessity? would 
not the same common sense that establishes courts of justice for 
individuals, establish a similar institution for the settlement of inter- 
national disputes? 432. — Folly of rival armaments, 433. — Changes 
in war armament, 434. — Influences adverse to war; (a) commerce; 
(&) increasing intercourse ; (c) education of the masses ; (d) example 
of the neutralization of the American lakes and the Black Sea, 435. 
— A congress of nations probable, 436. — Motion of Mr. Cobden in 
House of Commons ; Lord Palmerston's declaration ; the French 
empero. " proposal; declined only by Great Britain, 437. — Reply 
of Emperor of Russia, King of Prussia, and other monarchs, 438. — 
The public press in favor of disarmament, 438 and 439.- -The 
question rests with Great Britain, France, and the United States, 440. 

Chapter IX. — Economy of Public Education. — Objection to compul- 
sory education in England not appreciated in the United States, 
440. — Economic results of education ; (1) prevents pauperism and 
crime; (2) creates higher economical condition, 441. — Scotland and 
the United States as illustrations, 442. — Secures more uniform dis- 
tribution, 443. 

Chapter X. — Reproductive Consumption. — Its character and origin; 
necessity for the use of reproductive capital, 444. — Importance of 
frugality, 445. — What amount of reproductive consumption indis- 
pensable ; (1) capital must support labor, 446. — Capital must provide 
for the increase of population; must supply its own wants, 447. — 
Must support government, 448. — What amount of reproductive con- 
sumption is desirablej 1 448. — Little occasion to ask this question in 
a normal state of society, 449. — The degree somewhat determined by 
geographical position and political relations, &c, 450. — Desires to 
spend unequally developed in different communities, 451. 

Chapter XL — Popidation. — Reference to the theory of Malthus ; 
his two postulates, 452. — Three fallacies; (1) as to subsistence; 
(2) as to propagation, 453. — (3) The supposed necessary relation 



XXXiv CONTENTS. 

of distress to these postulates, 456. — Reference to English pauperism, 
457. — Causes that limit population, 458-460. — Misgovernment and 
war; self-restraint and social influences, 461. — Differences in the 
increase of the native and foreign population ; how accounted for ; 
(1) emigrants mostly young persons, 462. — (2) Engage in more 
healthy employments ; (3) but, principally, are far less influenced by 
prudential considerations ; American and foreign marriages in Massa- 
chusetts, 4C3. — Comparison of deaths in same population, note, 463. 
— Reflections upon the facts given, 464. 

Chapter XII. — Importance of a Rigid Consumption. — The moral and 
social interest that attaches to the wealth, attaches to its use, 465. — 
What a right consumption would bring, 465. — Wealth has its genera- 
tions, 4G6. — No natural obstacles to its constant increase and the 
general amelioration of the condition of mankind, 4G7. — Illustration 
of a wrong and right use of wealth, 467. — The science of wealth not 
complete which does not embrace moral considerations, 468. — What 
is the economic good ? the question answered, 469, 470. 



THE SCIENCE OF WEALTH: 

A MANUAL OF POLITICAL ECONOMY. 



POLITICAL ECONOMY. 



BOOK I. 

DEFINITIONS. 



ERRATA. 

Page. 185, for Diagram No. 4 read 3. 
„ 193, for Diagram No. 7 read 4. 
„ 195, for Diagram No. 8 read 5. 
„ 227, for Diagram No. 10 read 7. 



government of the state is important to realize the largest 
development of wealth, but only as a condition under which 
the laws of wealth, already complete and harmonious, may 
have their own proper sway. 

Government cannot furnish a new power in man, or a 
new agency in nature. It can, to a certain extent, control 
the exercise of existing power, and the use of existing 
agencies ; but it can control only by limiting them. Noth- 
ing is added through legislation. The science of wealth is 

1 (11 



POLITICAL ECONOMY. 



BOOK I. 

DEFINITIONS. 



CHAPTER I. 

CHARACTER OP THE SCIENCE. 

Political Economy is the Science of Wealth, and pro- 
fesses to teach the laws by which the production and con- 
sumption of wealth are governed. 

The term, " political economy," is not a fortunate one, 
since it leads the popular mind to a misapprehension of 
what the science actually teaches, and confounds it with 
politics, or the science of government, from which it is 
distinct. 

The relations into which these sciences enter are volun- 
tary, and for the supposed advantage of both, not from any 
logical necessity to complete either. A just and efficient 
government of the state is important to realize the largest 
development of wealth, but only as a condition under which 
the laws of wealth, already complete and harmonious, may 
have their own proper sway. 

Government cannot furnish a new power in man, or a 
new agency in nature. It can, to a certain extent, control 
the exercise of existing power, and the use of existing 
agencies ; but it can control only by limiting them. Noth- 
ing is added through legislation. The science of wealth is 

1 (11 



2 DEFINITIONS. [BOOK I. 

complete in its own principles, though the statesman may 
think it policy to contravene them for a supposed good. 
Political economy is, then, silent before the law. 

The science of wealth would be no less complete and cer- 
tain, should the action of government render the creation 
or possession of wealth impossible. The science would vin- 
dicate itself by saying, that, when wealth is created, it must 
be as my laws determine. The independence of these 
sciences does not imply that they are indifferent to each 
other. The statesman must consult the economist at every 
step, if he would use the powers of government to national 
advantage, and legislate in accordance with the natural 
laws of wealth, and to the advancement of the national in- 
dustry. It is not intended here to enforce this as a duty, 
but to show, by these remarks, the relation of the statesman 
to the science we are to investigate. 

Political economy teaches the relation of man to those 
objects of his desire which he can obtain only by his efforts. 
He has wants : he needs food, clothing, and shelter ; he 
wishes many things not vital to him. Together, these con- 
stitute his wants, in the view of political economy. This is 
the first fact of the science. It is the foundation of all. 
These wants can only be satisfied by efforts. This is the 
second fact. By it, man builds on the foundation laid in 
his wants. The objects or satisfactions obtained by these 
efforts are collectively called wealth, or those things which 
contribute to the welfare of man. This is the third fact to 
be noticed. The circle of political economy is here com- 
pleted. It may hereafter appear that there is a perpetual 
progress, an unceasing self-multiplication ; that each satis- 
faction creates a new want, which in turn seeks its object 
through an effort. 

Let us make a formal statement of what we have ob- 
tained : — 

Wants, Efforts, Satisfactions ; or, 
Desires, Labor, Wealth. 



CHAP. I.] CHAEACTER OF THE SCIENCE. 3 

The wants of man, in which are all the springs of wealth, 
are various, and change their place and form with times and 
circumstances. But they arise from his nature. They, are 
a certain and constantly operating force. They commence 
with man's existence, and terminate only with his life: 
and, when all the desires of the individual are satisfied in 
ithe grave, and his labor paralyzed, the wealth he lays down 
in death becomes the possession of other men, with full 
strength and fresh desires ; and so the creation of wealth 
goes on in ever-increasing circles, expanded by the central 
force, — the wants of man. While the individual awakens 
but slowly to the consciousness of his needs, gradually 
exhausts his activity in supplying them, and finally resigns 
all as he passes from life, we find that the sum of such 
wants and energies experiences no diminution by an atom, 
no suspension for an instant. Differing as these do in the 
individual, they are, in the world, as well ascertained and 
determinate as the facts on which any other science rests. 

While the one element of wants or desires is secured in 
the constitution of man's being, the other element — viz., 
the relation of effort or labor to them — is fixed in the con- 
stancy of nature, and the permanence we attribute to the 
created world, — a foundation sure enough to build upon. 

If, on the one hand, man's being were so constituted that 
his wants should cease, or be intermitted without any reason 
at the time, and without any assurance of return, or prove 
too weak to move the activities towards their satisfaction ; 
or, on the other, nature were so disposed that labor had no 
guaranty of reward, resulting indifferently in good to the 
laborer, or in nothingness, or in positive injury to him 
who performs it, — we could have no science <i political 
economy. 

But, as man's being and nature's laws are found in expe- 
rience, political economy is to be regarded as a positive sci- 
ence. Nothing in its fundamental principles is hypothetical 
or problematic. None of its methods are whimsical or acci- 



4 DEFINITIONS. [BOOK I. 

dental. Each thing is susceptible of clear demonstration. 
All its parts are calculable. 

"Political economy plainly belongs to the same class of 
sciences with mechanics, astronomy, optics, chemistry, elec- 
tricity, and, in general, all those physical sciences which 
have reached the inductive stage. Its premises are not 
arbitrary figments of the mind, formed without reference to 
concrete existences, like those of mathematics ; nor are its 
conclusions mere generalized statements of observed facts, 
like those of the purely inductive natural sciences.""* 

In his efforts to supply his wants, we have said, man 
avails himself of the powers of nature, the fertility of the 
earth, the stimulating quality of the sun's rays, the agencies 
of wind, water, and steam, — all the dynamical forces and 
mechanical supports at his hand. He must, therefore, recog- 
nize these, and know the laws by which they are governed. 
But such inquiries do not come within the field of the polit- 
ical economist. He takes them from the hands of the 
physical philosopher, furnished to his own use. 

Let us say, then, that human nature in its wants, the 
physical laws which supply them, and the statistics of hu- 
man industry in all its manifestations, are the material of 
our science. 

Political economy is a science whose laws may be dis- 
turbed in their operation, or made perplexing to observa- 
tion, by the legislation of the state. No enactment could 
affect the movements of the planets, nor could the utmost 
tyranny of his age obscure the eye of the philosopher who 
looked on the revolution of the earth. So far as political 
economy, as a science, is physical, depending on the forces 
and agencies of nature, it is above legislation. So far as it 
is moral, depending on human nature, it can be hindered or 
deflected by laws not its own. The desires of man may be 
influenced by enactments, not made to cease, not brought 
into being ; for they are all in his nature : they have been 

* Logical Method of Political Economy, by Professor Cairnes, p. 38. 



CHAP. I.] CHARACTER OF THE SCIENCE. 5 

created, and they are indestructible. But the force of the 
state, while it is impotent to present man with a single new 
motive, or to erase one from his mind, can yet modify and 
control what already exist. Practically, this is the great dis- 
turbing force which political economy has encountered in all 
the past. Wealth is the constant subject of legislation often 
in direct antagonism to its own laws. 

The express purpose of much legislation has been to 
reform human morals by an external pressure on man's de- 
sires, or, at least, to reform human manners by denying all 
gratification of such desires ; and this, not in the interest 
of religion, or for the safety of the state, but in matters of 
dress and equipage. Other legislation has sought to supply 
supposed deficiencies in human intelligence, and has substi- 
tuted blind laws for the keen sight of personal interest 
and business experience. Institutions have been created, or 
have grown up, whose actual effect at the present time, if 
not their avowed design, is to counteract the operation of 
the natural laws of wealth ; and with these institutions vast 
interests have become allied in such a manner as to influence 
the material welfare of a great portion of the people. Hence 
the laws of political economy are not only contravened by 
direct legislation, but are obstructed or perverted in many 
ways by false social and political opinions. 

It will be easily recognized as a part of that human na- 
ture of which we have spoken, that the promulgation of 
principles whose legitimate operation threatens the over- 
throw of long-established abuses, or which interfere with 
existing customs, should excite prejudice and opposition. 
This is one of the chief difficulties the science has had to 
encounter from the first. Here we have the reason why it 
lias made comparatively little progress, and is the only sci- 
ence that cannot obtain a candid and impartial examination 
from the mass of mankind. It is a long time since chem- 
istry was considered a diabolical art, since geology and 
archaeology were excommunicated as infidel, since the doc- 



6 DEFINITIONS. [BOOK I. 

trine of gravitation was an offence in the nostrils of the 
Church ; but prejudices and ignorance and partial interests 
never opposed economical truths more vehemently than to- 
day. 

" A science that comes in contact with the interests of 
men, which lies in the region of daily action and desire, 
will find its theories more frequently questioned, and its 
proofs more severely tried, than one which has to do with 
the relations of abstract ideas, or the facts of the external 
world. Political economy is not a science varying with 
climate and country. There is not an English and an 
American political economy distinct from each other, and, 
in a measure, the reverse of each other. The forces of hu- 
man nature, the agents of production, the arithmetic of 
gains, arc the same everywhere, and lead to the same prin- 
ciples of economic action." — Bascom's Political Economy. 

Of the advantage of a knowledge of political economy, the 
same writer thus speaks: " The knowledge which it imparts 
is of an important and — if we choose to make that the test 
— of a most practical character. Wealth underlies all civi- 
lization, and ultimately, therefore, in a large measure, both 
knowledge and religion. It is among the lowest, but also 
the first, steps to social worth and national strength. We 
are not to value wealth for that which it is in itself, but for 
that to which it can be made to minister. In its retinue 
come, or rather may come, all intellectual, social, and reli- 
gious advantages." 



CHAPTER n. 

DEFINITION OF WEALTH. 

Having now given the three great facts on which the sci- 
ence is founded, it becomes necessary to fix precisely the 
terms to be used in the further development of these 
inquiries. Political economy is unlike all other sciences in 



CHAP. II.] DEFINITION OF WEALTH. 7 

this, that it has not the option of making or choosing its 
own terms. From the nature of the case, it is obliged to 
adopt words in common use. It is encumbered with all the 
notions, false or loose, which may have been attached to 
these. It has to speak of wealth ; of value and utility ; of 
labor and capital"; of production, exchange, distribution, and 
consumption. These are common phrases. Each has a 
variety of meanings in popular language ; yet, when used in 
the discussion of this science, it must have one meaning as 
definite, exclusive, and precise as the terms of natural his- 
tory. The liability to confusion from this source can only 
be guarded against by being kept constantly in mind. 
Until the proper definitions become instinctive, so that they 
arise freely in their own shapes on the mention of such 
terms, there will be a constant slipping back, as it were, to 
their habitual meanings in common life. At the best, the 
laborious reference of the mind to formal definitions will 
tend to diminish the force of all representations and argu- 
ments where they appear. The greatest obstacle, however, 
encountered by writers, is not that arising through popular 
prepossessions in regard to words ; but it is their own mis- 
application of language, confounding things essentially dis- 
tinct, and clothing exact principles in expressions so vague 
and indeterminate as to make science impossible. 

We have said that political economy treats of wealth ; 
but what is wealth? In popular language, it is houses, 
lands, ships, merchandise, with a general " and so forth," — 
all that we call property. In science, the term " wealth " 
includes all objects of value, and no other. 

A discussion of its principles will be satisfactory only so 
far as the explicitness and exclusiveness of this term is held 
in view. No apology is to be given for the definition, and 
no substitute offered. The least deviation from this line 
will lead to ceaseless entanglements and perplexities. 

The principle is cardinal. The science turns on it. 

Political economy has been called the " science of values." 



8 DEFINITIONS. [BOOK I. 

No definition could be more strictly accurate ; but we shall 
retain that already given, as being more popular, and as 
nearer to the customary use of the words. It is, then, the 
science of wealth, understanding that wealth consists of 
objects of value only. 



CHAPTER in. 

DEFINITION OF VALUE. 

What, then, is value ? When does an article or commodity 
.possess value ? 

When it is an object of man's desire, and can be obtained 
only by man's efforts. Any thing upon which these two con- 
ditions unite will have value ; that is, a power in exchange. 
Value is the exchange power which one commodity or 
service has in relation to another. 

That such a power does exist, is not a matter of dispute. 
Its influence is felt and acknowledged in every country, 
civilized or savage. This it is which excites to industry, 
creates commerce, and supports government. This power 
obeys laws as certain and immutable as those which apper- 
tain to any of the great forces of nature. Just as man is 
sure to feel wants, to put forth efforts, to realize satisfac- 
tions ; so he is sure to be found exchanging an excess for a 
novelty, a home product for that which comes from abroad, 
the work of his mind for the work of another's body. 

Again let us remark, that the term " value " always ex- 
presses precisely power in exchange, and no other power or 
fact. Desirableness is not value. Utility is not value. No 
objects are more useful and desirable than atmospheric air, 
the light of day, the heat of the sun ; yet these have no value. 
They will exchange for nothing, because any one may have 
all he wishes without effort. 



CHAP. III.] DEFINITION OP VALUE. 9 

An object, to possess value, must be desired by some one 
who is willing to render a service or equivalent in order to 
obtain it, for the reason that he cannot have it without. It 
is what a man gets, what another will give, that determines 
value. The use of this term, in its strictest sense, is of the 
utmost importance. If confounded with any thing, or taken 
into any partnership, the whole science is thrown into con- 
fusion. 

It has been common for writers to speak of exchangeable 
value, intrinsic value, value in use, &c. ; but all these terms 
are inappropriate. The adjectives are superfluous : they 
have no significance whatever. To speak of exchangeable 
value is to speak of exchangeable exchangeability. The 
term " value," in the science of values, always implies power 
in exchange, and nothing else. 

Of all the writers on the subject, no one seems to have 
been more full and clear in the definition and illustration 
of value than M. Bastiat, in his " Harmonies of Political 
Economy : " — 

"Theorists have set out, in the first instance, by confounding 
value with utility. This was their first error ; and, when they 
perceived the consequences of it, they thought to obviate the diffi- 
culty by imagining a difference between value in use and value in 
exchange, — an unwieldy tautology, which had the fault of attach 
ing the same word 'value' to two opposite phenomena" (p. 161). 

" The theory of value," he further says, " is to political economy 
what numeration is to arithmetic. Value is the relation of two 
services. The idea of value entered into the world for the first 
time when a man said to his brother, ' Do this for me, and I will 
do this for you ; ' they had come to an agreement : then, for the 
first time, we could say the two services exchanged, — were worth 
each other." 

The case of the blind man and the paralytic is given in 
illustration. The blind man says, " I have limbs : you have 
eyes. I will carry you: you shall be my guide." Each 
receives a benefit; their services are exchanged, — valued by 



10 DEFINITIONS. [BOOK I. 

each other. Here we have value appearing, not in material 
wealth, but in services; yet the principle is just the same as 
when the hatter says to the bootmaker, " I will give you a 
hat for a pair of boots," and they change accordingly. They 
really exchange their mutual services, which have been put 
into the form of material objects. 
Another illustration is given : — 

" I wish for water to quench my thirst,; I go two miles to the 
spring, and get it. My neighbor goes on the same errand. I say 
to him, ' Bring me water, and I will do something in the mean time 
for you ; I will teach your child to spell.' Here is the exchange of 
two services : one is worth the other. Presently, I say to my 
neighbor, ' Instead of teaching your child while you are gone for 
the water, I will pay you twopence each time.' If the proposal is 
accepted, we say the service is worth twopence. If others in the 
neighborhood employ the same man to bring water, he becomes a 
water-merchant ; and the value of water is as fully recognized as 
the value of wheat. The water, at first valueless, is now an article 
of wealth. It has not changed its chemical qualities, but services 
have become materialized, or incorporated with it. If the well, in 
the case supposed, were brought nearer to the village, the value 
of the water would be reduced, because less labor or service would 
be required to obtain it." 

Suppose an aqueduct built by the joint labor of the com- 
munity. The business of the human water-carrier has ceased ; but 
not the less is the value of the water, delivered at the door, the 
product of labor. The labor has been invested with a permanent 
form, as pipes, walls of masonry, gates, &c. Labor has been accu- 
mulated for the purpose, instead of using the hourly labor of the 
water-carrier. The industry of the bricklayer and the plumber 
carries water years after they ceased to work on the aqueduct. 

We have said that it was not the properties of the water that 
gave value ; no more does the value reside in the mere delivery of 
the same. The water-works of some regions furnish them water 
on the ground, at the rate of a million and a half square feet a day 
to each square league. Yet the water has no value there ; for the 
agencies employed are not the labor of man, but the currents of air, 
— Nature's pipes and conduits. 



CHAP. III.] DEFINITION OF VALUE. 11 

The diamond, as M. Bastiat observes, makes a great figure 
in works on political economy. It is adduced as an illustra- 
tion of the laws of value, or of the supposed disturbance of 
those laws; and, as he gives a more full and satisfactory 
explanation of the cause of value in a diamond than any 

other writer, we shall quote his words : — 

« 

"I take a walk along the sea-beach, and I find by chance a 
magnificent diamond. I am thus put in possession of great value. 
Why ? Am I about to confer a great benefit on the human race ? 
Have I devoted myself to a long and laborious work ? Neither the 
one or the other. But, undoubtedly, because the person to whom I 
transfer it considers that I have rendered him a great service, — all 
the greater that many rich men desire it, and I alone can render it. 
The grounds of his judgment may be controverted. Be it so. It 
may be founded in pride or vanity. Granted again. But this 
judgment has nevertheless been formed by a man who is disposed 
to act upon it, and that is sufficient for my argument. Far from 
the judgment being based on a reasonable appreciation of utility, 
we may allow that the very reverse is the case. Ostentation makes 
great sacrifices for what is utterly useless. In this case, the value, 
far from bearing a necessary proportion to the labor performed by 
the person who renders the service, may be said rather to bear 
proportion to the labor saved to the person who receives it. This 
general law, which has not, so far as I know, been observed by 
theoretical writers, nevertheless prevails universally in practice. 

"The transaction relative to the diamond may be supposed to 
give rise to the following dialogue : — 

" ' Give me your diamond, sir.' 

" ' With all my heart. Give me, in exchange, your labor for an 
entire year.' 

" ' Your acquisition has not cost you a minute's work.' 

" ' Very well, sir : find an equally lucky minute.' 

" ' Yes ; but, in strict equity, the exchange ought to be one of 
equal labor.' 

" ' No : in strict equity, you put your value on your service, and 
I upon mine. I don't force you : why should you lay a constraint 
upon me ? Give me a whole year's labor, or seek a diamond for 
yourself' 



12 DEFINITIONS. [BOOK I. 

" ' But that might entail on me ten years' work, and would prob- 
ably end in nothing. It would be wiser and more profitable to 
devote those ten years to another employment.' 

" ' It is precisely on that account I imagined I was rendering you 
a service in asking you only one year's work. I thus save you nine, 
and that is the reason why I attach great value to the service. 
If I appear to you exacting, it is only because you regard the labor 
which I have performed; but consider also the labor I save you, 
and you will find me reasonable in my demands.' 

" ' It is not less true that you profit by nature.' 

" ' And, if I were to give away what I have found, for little or 
nothing, it is you who would profit by it. Besides, if this diamond 
possesses great value, it is not because Nature has been elaborat- 
ing it since the beginning of time. She does as much for a drop 
of dew.' 

" ' Yes ; but, if diamonds were as common as dew-drops, you 
could no longer lay down the law to me, and make your conditions.' 

" ' Very true ; and, in that case, you would not address yourself 
to me, or would you be disposed to reconrpense me highly for a 
service you could perform yourself.' 

The result of this dialogue, M. Bastiat regards as proving 
that value no more resides in the diamond than in air or 
water. 

" It resides exclusively in the services which we suppose to be 
rendered and received with reference to these things, and is deter- 
mined by the free bargaining of the parties who make the ex- 
change. The pretended value of commodities is only the value of 
services, real or imaginary, received and rendered in connection 
with them. Value does not reside in the commodities themselves, 
and is no more to be found in a loaf of bread than in a diamond, 
the water, or the air. No part of the remuneration goes to Nature. 
It proceeds from the final consumer of the article, and is distributed 
exclusively among men." 

Again : — 

" In order that a service should possess value in the economical 
sense of the word, it is not at all indispensable that it should be 
real, conscientious, and useful service. It is sufficient that it is 



CHAP. III.] DEFINITION OF VALUE. 13 

accepted, and paid for by another service. It depends wholly on 
the judgment we form in each case ; and this is the reason why 
morals will always be the best auxiliary of political economy. 
Economic science would be impossible if we admitted as values 
only values correctly and judiciously appreciated." i 

Value does not always exist in a visible form. The 
wealth of a nation is generally supposed to consist in the 
aggregate of its material objects having value, — in its lands, 
buildings, ships, merchandise, treasure, canals, railroads, 
&c. ; but its potential wealth, or power of creating wealth, 
includes not only all these named, but the intelligence, skill, 
industry, and productive energy of its citizens. No in- 
ventory of a nation's effects will give an adequate idea of its 
economic condition, unless we hold in view its capacity of 
development, and the industrial genius of the people. 

The main principle in the theory of value is expressed in 
the common phrase, " A thing is worth what it will fetch," 
— that is, what some one will give for it ; the value depend- 
ing on the will of the purchaser, as determined by his 
judgment. 

Value is the appreciation of services. 

The value of a thing is the service or labor which it will 
command in exchange. 

If there is no resistance to the possession of an article, it 
can have no value. Labor alone does not always create 
value ; but value never exists in an article, unless some one 
is willing to give labor, in some form or other, in exchange 
for it. 

The ancients thus described the combinations of exchange : 

Do ut des, Commodity for commodity. 

Do ut facias, Commodity for service. 
Facio ut des, Service for commodity. 
Facio ut facias, Service for service. 

This statement exhausts all the modifications of the 
principle. 



14 DEFINITIONS. [BOOK I. 

CHAPTER IV. 

DISTINCTION BETWEEN VALUE AND UTILITY. 

We have now gone over all the ground belonging to the 
theory of value : but we cannot leave it without dwelling 
a while on one part of it; without clearly marking the 
boundary which separates it from the domain of utility, — a 
most, troublesome and intrusive neighbor. 

There is between utility and value a distinction as real as 
between weight and color. 

Suppose a farmer in A r ermont has one thousand bushels 
of wheat ; its value is two thousand dollars. Its utility is, 
that it will make forty thousand pounds of bread. 

A farmer in Illinois has one thousand bushels of wheat, 
equally good ; but its value is only one thousand dollars. Its 
utility is just the same. It will make as much bread, and 
as good, as the wheat of Vermont. The value, then, does 
not reside in the utility, but in the power in exchange. The 
wheat of Vermont commands a higher price than that of 
Illinois, beoause of its location nearer to the market. Here 
location means labor; that is, the labor required to overcome 
it. This will be still more apparent, if we suppose the far- 
mer removed a thousand miles by land from any market. 
His wheat might then have no value; yet its natural, inhe- 
rent utility would be as great as ever. 

Take another illustration. A pound of small nails or 
tacks formerly had the value of twenty-fivo cents, equal to 
one-fourth of a day's labor. By the introduction of ma- 
chinery, the value was reduced to ten, then to five cents, or 
the twentieth part of a day's labor ; the utility remaining all 
the time as at first. The value of many articles, especially 
those called manufactures, are, in the ordinary progress of 
human effort, constantly diminishing, though never anni- 
hilated. This is because the labor or service to be appreci- 



CHAP. IV.] VALUE AND UTILITY. 15 

ated in such values is constantly lessening, though it can 
never wholly disappear. In this is seen, not only the 
certain distinction between value and utility, but one of 
the most beneficent laws of the science, which may be stated 
as follows : Value moves, diminished constantly by the sub- 
stitution of the gratuitous agencies of Nature, by the inge- 
nuity and industry of man. Utility remains fast-anchored 
in the wants of man and the properties of matter. This 
is the primary fact. But value moves again, — not to in- 
crease, but to multiply. Values are no greater, but there 
are more of them. The factor that multiplies is the ever- 
growing wants of man. Now, utility begins to move, ex- 
panding with the enlargement of man's activities, and the 
increase of the fruits of labor. Here we have the promise 
that the human race is destined to a constant augmentation 
of utilities, bringing in a great amelioration of its condition, 
Man is relieved from part of his labor only to feel new 
wants, and so, through fresh efforts, to find greater satis- 
factions in life. 

Political economy makes no inquiry whether the increase 
of material objects of desire is, in truth and on the whole, 
a good. It assumes this. It leaves to others the discussion 
whether the highest interests of society are attained by 
repelling the kindness of Nature, and by denying the in- 
stincts of man. This kindness, and those instincts, politi- 
cal economy accepts, and goes forward from them. It can 
never become stoic. It is not a science, unless wealth is a 
good. 

It is a science ; and it has no doubt that the healthful, 
honest increase of physical necessaries, comforts, luxuries, 
and refinements, with the opportunities which they bring for 
mental improvement and moral culture, with the safeguards 
they place upon social order and personal rights, and with 
the manifold strong and subtile motives which they contri- 
bute to the exertion of all the human faculties, and the full, 
friendly intercourse of all communities and peoples, — it 



16 DEFINITIONS. [BOOK I. 

has no doubt that this is desirable. But it does not labor 
to prove it so. It does not found itself on any supposed 
refutation of asceticism. It takes without inquiry the uni- 
versal inclination to the accumulation of wealth, under the 
restraints of mutual duties and common rights. 

We have said that Nature adds value to nothing. Though 
unceasingly at work for man, she receives no compensation. 
She creates utilities beyond computation, but does all gra- 
tuitously. Wind, water, and steam are most efficiently 
engaged in producing commodities necessary to the welfare 
of mankind ; and the earth is unceasingly active to bring 
forth man's food in its many forms. Yet all is done with- 
out adding to the wealth of the world. The forces " work 
for nothing," and hence confer no value. The power of 
the wind, for example, in propelling vessels, adds no value 
to the articles transported. But, it may be objected, would 
it not cost a great deal more to transport that merchandise, 
if it had to be done by human hands working at the oar ? 
Certainly ; and, from the very illustration, it appears that 
the power of the wind has not increased the value, but 
rather diminished it. It has taken the slaves from the 
bench, and does the merchant's rowing for him. It is Na- 
ture's work, not man's labor ; and hence value goes down, 
while utility stands fast. 

Transportation does, indeed, add to the value, but only 
because man's vessels and man's labor are employed in 
effecting it. All the natural forces that come in take off 
from value. If a merchant were to make a charge for the 
use of his vessel, the payment of his hands, and the ordi- 
nary rate of profit on his voyage, and, besides these, for the 
use of the wind, it would not be allowed. Competition 
would correct his philosophy ; and the eloquence of unsold 
merchandise would be his teacher in the theory of value. 
Take steam for an example in point. The services of this 
great agent in England are probably equal to the muscular 
effort of one hundred millions of men ; but the whole of it 



CHAP. IV.] VALUE AND UTILITY. 17 

is gratuitous. All that is required to secure these services* 
is machinery and fuel, whose whole value has been given by 
labor. 

If we look to the fertility of the land, by far the greatest 
of all the natural forces engaged in production, we shall 
find that it confers no value. Is it asked, " Why, then, do 
men pay for the use of it ? "Why buy it at a large price ? " 
The answer at length to this question will be deferred till the 
discussion of rent ; but it will be sufficient for the purpose 
of the present argument to say, that it is because appropri- 
ated or owned (whether rightly or wrongly) by individuals 
who can make a profitable use of it themselves. 

There are many special products which have been pre- 
sented, in discussion of this subject, as exceptions to the 
principle, that value comes only with and by labor; e.g., 
precious stones, curiosities, the precious metals, monopolies, 
patents, &c, &c. The relations of the first two are fully 
defined in the extract already offered from the work of M. 
Bastiat. Of gold and silver, it is enough to say, that, what- 
ever the theories of the past, it is now an abundantly recog- 
nized fact, that the mining of these metals proceeds strictly 
according to the laws of industry, with hardly its ordinary 
accidents and chances. It is estimated, that, when brought 
to market, these metals have cost sixty-six cents on the 
dollar. The remaining thirty-four cents constitute the re- 
muneration of the laborer and the capitalist ; which cannot 
be regarded as excessive when the privations, risks, and 
hardships of the occupation are kept in view. Monopolies 
and patents confer no value, but simply contravene its laws. 
This is their object. They are designed, by giving the 
exclusive right to produce or sell a given article, to reward 
the favored party for his skill in invention, or for a general 
good supposed to be conferred upon the community. They 
are compulsory contributions levied upon the public for the 
benefit of individuals. 

2 



18 DEFINITIONS. [BOOK I. 



CHAPTER V. 

DEFINITION OF LABOR. 

We have defined value at great length and with various 
illustrations, with the result, to our minds, that it arises 
from the union of desire and labor ; but we have not defined 
the latter term. 

"What is labor ? 

The voluntary efforts of human beings to produce objects 
of desire. 

Labor is always irksome. This is law. Men do not vol- 
untarily put forth their exertions, except for a reward. By 
the beneficent provision of Nature, habit assists our activ- 
ities ; great desires overcome the sense of weariness and 
pain ; the impetus of one movement carries us on into the 
next. Toil has its compensations. Its fruit is pleasant and 
wholesome. But not the less is it, of itself, against the drift 
of man's natural inclinations.* It is because men do not 
voluntarily put forth exertions, except for a reward, that 
every thing which costs labor will, as a general rule, com- 
mand a corresponding amount of service or labor. There- 
fore it is that labor is the essential measure of value. 
Whatever disturbing causes there may be, it will, on the 
whole and in the long-run, be true that labor commands its 
equivalent in labor. 

In this definition, we have spoken of voluntary efforts 
alone, because involuntary or uncompensated efforts are 
not to be classed as labor. They are merely the result of 
the use of a given amount of capital. Slaves are owned, 

* " Labor is either bodily or mental, or, to express the distinction more 
comprehensively, either muscular or nervous ; and it is necessary to include 
in the idea, not solely the exertion itself, but all feelings of a disagreeable 
kind, all bodily inconvenience or mental annoyance, connected with the em- 
ployment of one's thoughts or muscles, or both, in a particular occupation.' 
— J. Stuart Mill, Principles of Political Economy, p. 29, Am. ed., vol. i. 



CHAP. VI.] DEFINITION OF CAPITAL. 19 

like horses or oxen ; and what valne they confer is from 
their employment as so much capital. This distinction is 
not unimportant, because we shall see that capital is con- 
trolled by other laws than those which govern labor. 

Under a free-labor system, as will be shown, there are 
two proprietors of value, — the laborer and the capitalist. 
Under a slave-labor system, only the latter has any share in 
the product. 



CHAPTER VI. 

DEFINITION OF CAPITAL. 

Labor enters into production, or the creation of values, in 
two ways : — 

First, As the labor of the present. 

Second, As the labor of the past. 

"We call the first " labor " simply ; the second, " capital," 
.which is accumulated labor. In their nature, these are 
identical. They have assumed different forms, have ac- 
quired independent rights, and each obeys certain laws 
peculiar to itself. These two forms of labor may be, and 
often are, owned by different persons. One man has present 
labor at his command. This must be his own. Another 
has accumulated labor. This may be his own, or that of 
others, of which he has come into possession. 

In practice, the two forms of labor must come together 
and help each other, if they would effect the barest subsist- 
ence of mankind. Even the naked savage goes hungry till 
he gets his bow and his fishing-hook by the labor of his 
hands. As society goes forward to plenty, comfort, luxury, 
civilization, the union and mutuality of the two become 
more intimate and vital. By such a connection alone is 
wealth produced. 



20 DEFINITIONS. [BOOK I. 

The growth of capital, and the stops by which it comes to 
its proper position in the creation of values, may be best 
shown by a familiar illustration. An able-bodied workman 
presents himself to you, having the full disposal of his own 
powers, fully representing' the labor of the present, and that 
only. We will, however, compromise so far with his neces- 
sities as to allow him to be clothed ; though each article he 
wears has come from the labor of the past, and, in this 
supposition, is capital. He has no tools; and, if you have 
no work that can be done without tools, you must deny him 
employment. His chances, then, of labor, are hardly as 
one to a hundred without tools. In the other ninety-nine, 
he starves for want of capital. But, by chance, you find 
work requiring no help from accumulated labor. You set 
him to clearing a field by throwing the stones into heaps. 
He has secured subsistence for the day without capital. It 
was uncertain whether he would obtain it. It is certain the 
employment cannot last long, since need of such assistance 
closes, perhaps, with the first evening ; and you send him 
away helpless in the midst of civilization. His livelihood 
to-morrow is still more precarious. But no : he carries 
away his earnings for the day. He chooses to lay them out 
in an axe, rather than on any object of comfort or pleasure. 
He has practised a self-denial. He appears the next morn- 
ing with his axe. He has enlarged the sphere of his activity, 
perhaps, fifty-fold. He has now fifty chances of employ- 
ment. He has secured work for fifty days. Before the 
close of this period, he can, by thrift, provide for his imme- 
diate bodily wants ; pay for his clothes, for which we gave 
him credit more in charity than logic ; and become the 
possessor of a pick and shovel, scythe and rake: He is now 
a full farm-laborer, able to do any part of the strictly neces- 
sary work of agriculture with such tools as he has, and may 
rightfully expect employment every day of the year. So it 
is, in the grand field of the world's industry, that capital — 
the accumulation of labor — helps the labor of the present, 



CHAP. VII.] RELATION OF CAPITAL AND LABOR. 21 

not only to its immediate sustenance, but to permanent 
occupation, to increase, and to the highest economic civi- 
lization. 



CHAPTER VII. 

RELATION OF CAPITAL AND LABOR. 

But this union creates the competing interests of labor and 
capital, since they are generally found in different hands. 
An interest is, in scientific meaning, a share. Each has 
now only a share. Before, each had the whole of its own 
product, but a most melancholy whole. They are competi- 
tors ; for those shares are not determined absolutely in the 
nature of the union to which they have consented. It is by 
the earnestness and persistency of competition alone that 
either can secure its remuneration, or maintain its existence. 

But they are not antagonists. All their effort, even in 
the severest assertion of their individual claims, goes to the 
increase of the common property, and the advancement of 
their mutual service. Antagonism tends to destroy. Its 
purpose is, so far as it proceeds, to remove one or the other 
of the parties. The competition of labor and capital never 
ceases ; but it respects the bond of union in which only 
each has its own full development. 

Here we see the folly of the supposed antagonism. They 
are partners, and should divide the results of industry in 
good faith and good feeling. False philosophy, or unprin- 
cipled politics, may alienate their interests, and set them at 
discord. Capitalists may encroach on labor. Laborers 
may, in their madness, destroy capital. Such is the work 
of ignorance and evil passions. It is the surpassing folly of 
the members that combined to cut off supplies from the 
stomach. 

However far such a strife may be carried, it must result 
in mutual injuries ; and health can only be restored by ob- 



22 DEFINITIONS. [BOOK I. 

taining the recognition of the full rights and obligations of 
each. The condition of well-being is peace. A false philos- 
ophy has set the world at war for ages, proclaiming that 
what one nation may gain another must lose. Such a phi- 
losophy has had its trial, extending over centuries of waste 
and terror ; and is now, fortunately, dishonored through the 
whole civilized world. 

Akin to it is the belief that hatred and retaliation are the 
normal relations of capital and labor, and that mutual dis- 
trust and hurtfulness are inevitable in all the developments 
of industry. Such a belief blasphemes against the harmo- 
nies of Providence, — is sightless before the glorious order 
of man and nature. It was the popular faith in such a prin- 
ciple of hurt, not help, between the two great divisions of 
industrial power, that effected the Revolution in France. 
The cruel, shallow selfishness of capital has robbed labor by 
means of law. Labor, impoverished, ignorant, degraded, 
has often turned upon its tyrant, and laid in a common 
waste church and state, letters and wealth. 



CHAPTER VIIi: 

THE GENERAL DIVISIONS OP THE SCIENCE. 

1st, It being admitted that man has wants which he can 
satisfy from the world around him, and which he desires 
to satisfy as fully and easily as possible, we are first led to 
inquire in what manner this can be done most effectively, — 
how the forces at his command may be most advantageously 
employed ; in other words, what are the laws which govern 

the PRODUCTION OP WEALTH. 

2d, Since men have different capacities and tastes, — 
since they are placed in a variety of circumstances as to 
soil, climate, and civilization, — their products will be vari- 



CHAP. VIII.] GENERAL DIVISIONS OF THE SCIENCE. 23 

ous ; and yet, since all men desire nearly the same objects, 
an interchange of their respective commodities will become a 
necessity. Hence arises that department of industry called 
exchange, the laws of which it is the province of political 
economy to investigate. 

3d, Almost all objects which men desire are produced by 
the joint efforts of several individuals. One contributes 
strength; another, skill; another, capital : yet the product 
must be distributed among them all, and in just propor- 
tions. As this division, it is quite clear, should not be left 
to the caprice of individuals, but be determined by natural 
laws, it becomes one of the departments of inquiry upon 
which the political economist must enter. It is here his 
duty to ascertain what those laws are, and under what cir- 
cumstances and conditions they will effect an equitable dis- 
tribution of the wealth which has been produced. 

4th, As all commodities created by human exertion are 
designed for use, and as such use implies consumption 
more or less rapid, and as upon this depends the power and 
disposition for reproduction, the question of consumption 
has a scientific place among the objects of our inquiry, and 
will be found to possess a practical importance second only 
to that of production. 

These are the four great questions which suggest the gen- 
eral divisions of our subject; viz., production, exchange, 
distribution, and consumption of wealth. 

Exchange might not improperly be regarded as belonging 
to the first general division, since it contributes largely in 
the actual production of wealth : yet, as it also greatly facili- 
tates and increases consumption, and has influence through- 
out the whole domain of human industry, it seems desirable 
to regard it as a separate department ; and it has often been 
treated as such by writers on the general subject. 



BOOK II. 

PRODUCTION. 



CHAPTER I. 

FORMS OF PRODUCTION. 

All values are created by modifications of existing matter. 
Man cannot create one particle ; but he can modify what he 
finds, or change its condition, in three ways ; viz. : — 

By TRANSMUTATION, by TRANSFORMATION, by TRANSPORTATION. 

First, by transmutation. 

This' is eminently the work of the agriculturist, who, 
availing himself of the chemical agencies of the earth and 
air, transmutes seeds into vegetables, fruits, and grains ; 
and these again, by the aid of animal organizations, into 
butter, beef, hides, &c. This is the most extensive branch 
of industry, and employs probably four-fifths of the human 
race from generation to generation. It is the base of the 
great pyramid of production. It furnishes the material 
and the support of all other forms of labor ; and not this 
only, but it renews and restores their waste with an unceas- 
ing supply of fresh bodily and mental power. The air of 
trade and of the mill heats .and rises, and cold currents 
rush in from the prairie and the mountain. The foot of 
the rustic is ever turned to the marts of commerce, and the 
busy gatherings of men. He comes with clumsy tread and 
homespun dress ; but he takes the first place in the market 
and the synagogue. Basil enters Constantinople as night is 
falling, stares about on the magnificence of the city, and 
[24] 



CHAP. I.] FOEMS OF PRODUCTION. 25 

falls asleep on the steps of the Church of St. Diomede. 
He is tired of Macedon. He has business on the throne of 
the world. He who restored the laws of the Eastern em- 
pire, and reclaimed the lands deluged by the barbarian 
floods, is the exemplar of the countryman, in all times, gaz- 
ing rudely around on the luxury his homely virtues are to 
appropriate. The millionnaire dashes by in his splendid 
turnout : a raw, tall lad, with a bundle on a stick, looks on 
with wonder, — the employer of that man's children. 

Just as agriculture sends to the markets and the mills of 
the world their materials, so it sends them their workmen. 
Strength and even life go fast in the eager competitions of 
manufactures and trade. Cool air, fresh blood, flows in 
from the country, to supply the waste. The bare, bleak 
hills, where Nature grudges every morsel of food, and stabs 
cruelly through every chink in the wall, every rent in the 
clothes, feed the busy cities with men. The streams of vig- 
orous life run off from them to refresh the plains below. 

Agriculture has no need to receive back, in any form, 
her contributions to the other occupations. The power to 
give without exhaustion lies in the liberal, healthful repro- 
duction of man, when living in intimate relations with 
Nature. Here, after all its hurts, humanity comes for heal- 
ing. War and pestilence, the fierce contest of the mart, 
the stifling atmosphere of the mill, may waste our kind in 
quick or lingering deaths ; but still, by the side of the 
brooks, men will be born to hold up the frame of industry 
and social order when their supporters faint and fail. Yet 
agriculture does get back a certain share of what it gives. 
Because it is not a labor of ambition, because honors are 
not to be gathered in the fields it cultivates, because the ex- 
citements of machinery and association are not to be found 
in its work or play, because quick wealth is not to be real- 
ized in its slow increase, the rustic turns himself to the 
city ; and because it is not a labor of ambition, and for 
each of the other reasons given, the citizen, weary with all, 



26 PKODUCTION. [BOOK II. 

goes back to the open fields and fresh air of the country. 
The cabbages of Diocletian, the eggs of John Ducas Vata- 
ces, the apples of Sir William Temple, are the return made 
to agriculture for Basils, Astors, and Lawrences. 

But the department of agriculture is not confined to the 
popular view of it. When grain is produced, the seed must 
be planted in prepared ground, the long interval of growth 
to maturity must be filled with care and labor ; and, at last, 
the work of harvesting completes the round of duties that go 
to the production of the grain. But there are great indus- 
tries in the department of agriculture, where harvesting 
alone is performed by man. Nature has done all the rest. 
Man's part is to find and to take of her bounty. Such an 
industry is mining, — whether of iron or coal, whether of 
diamonds underground in Golconda, or sponge under water 
in the Archipelago. Such an industry is the fisheries, — 
whether of whales off Greenland, of cod off Newfoundland, 
or of pearl-oyster off Ceylon. So great, indeed, is the sci- 
entific extension of the department of agriculture, that even 
the smelting of the ore, and the transportation from the 
fishing-grounds to the port from which the venture began, 
are included in it, because these first put the products in 
the possession of the capitalist in an available form. Any 
further change, whether to make the metal up into forms 
for use, or carry the fish or oil or pearls to market, would 
come under the other forms of production, to which we now 
proceed. 

Man modifies matter and exchanges its condition, — 

Secondly, by transfonnation. 

This is the business of the manufacturer and the me- 
chanic. These create values by changing the forms of 
matter, as cotton and wool into cloth, iron into tools and 
implements. This is the second great department of human 
industry. Its ramifications extend throughout the world, 
yet not everywhere of the same vigor and extent. Since 
manufactures, as a whole, do not meet want's so primitive 



CHAP. 1.] FORMS OP PRODUCTION. 27 

and absolute as does agriculture, they are, by a law evi- 
dent in all industry, found not to be so equally diffused. 
Those needs which are peremptory and instant will, from 
that reason, tend to obtain their supply from the immediate 
neighborhood in which they arise. The nearer objects of 
desire approach to being luxuries, the more cosmopolitan 
they become. Other reasons, which will appear in our prog- 
ress, will further account for the unequal growth of manu- 
factures, which have yet more uniformity than is exhibited 
in statistical tables, or in general estimation, since the 
staple articles of manufacture attract more attention than 
those multiform smaller products which far outweigh them 
in value. 

The distribution of manufactures is governed by a variety 
of conditions, among which may be briefly stated the fol- 
lowing : — 

1. The industrial genius of a people. "Without plun- 
ging into the deep questions of ethnical differences, or 
compensations in the whole of character, it is yet evident 
beyond discussion, that the active powers of every people 
have something of their own which they do not fully share 
with others. Were all the nations of the earth possessed 
of mental, moral, and. physical qualities which could be 
positively estimated to be, in the sum of them, equal, it is 
quite certain that they would be far from similar: their 
energies would develop in different lines towards different 
objects. Patience and a kind of business faith distinguish 
some peoples, mark their features, and are impressed dis- 
tinctly in the results of industry. Activity and daring spec- 
ulation no less characterize others. To a class of minds 
thoroughly representative of more than one nation, mechan- 
ical contrivance gives the same glow of pleasure that 
rewards the painter for his years of toil. A distrustful, 
reserved, secretive disposition may be observed through the 
entire industry of another country, tending to individual- 
ize efforts and discourage combination. The catalogue of 



28 PRODUCTION. [BOOK II. 

traits has been extended sufficiently to account for much 
of the inequality which exists in the distribution of manu- 
factures among the nations of the civilized world. 

2. The territorial advantages of a people, which are 
both positive and negative in their nature, — positive, as a 
people is endowed with water-power, and with the col- 
location of necessary materials, as of ore, coal, and lime for 
making iron ; negative, as a people is not attracted to other 
branches of production by superior facilities. It is esti- 
mated that Holland has not agricultural capacities to supply 
a third of its population. With some peoples, this niggard- 
liness of soil would have been a reason for emigration or 
starvation ; but there, uniting with the peculiar genius of 
the inhabitants, this necessity has produced a wealthy and 
flourishing state. It has ever been held by moral writers, 
that such unkindness of Nature develops the industrial 
energies of a people, where it is not so extreme as to 
destroy even the conditions of production. But the inquiry 
is too abstruse for our purpose. 

3. Great accidents, belonging neither to the essential 
genius of the people, or its territorial endowments. Such 
are the transcendent discoveries in the sciences and the arts. 
Such are wars which exhaust nations, leaving them weak 
for generations. Such are persecutions, like that which 
scattered over the continent six hundred thousand Hu- 
guenots, — the cunning artisans of France; like that which 
wrought devastation still greater in the " reconciled " prov- 
inces of Spain.* Such was the windfall of the Indies in 
the lap of Europe. The desirableness of such a distribution 
of manufactures will be discussed elsewhere. Our purpose 
here is only to show by what means it comes about so un- 
equally. 

Passing now from this question, and looking only to the 
aggregate of such industries, we find it to be small, if we 

* " Our manufactures were the growth of the persecutions in the Low 
Countries." — Edmund Burke, in his speech to the electors of Bristol. 



CHAP. I.] FORMS OF PRODUCTION. 29 

consider only the number of those employed. But labor 
here acts in connection with a greater amount of capital 
than in agriculture, and avails itself of more and mightier 
agencies of Nature. The factor into which labor" is multi- 
plied is vastly increased when we enter the workshop and 
the mill. 

But man modifies matter or changes its condition, — 

Thirdly, by transportation. 

The merchant does not primarily create value in objects, 
but enhances that already existing by transporting such 
objects from one locality to another. 

The characteristic illustration is of the most familiar 
kind. Cotton boifght at New Orleans, in 1860, for twelve 
cents per pound, transported to Liverpool, would have sold, 
say, for fifteen cents. By his capital and skill, the mer- 
chant has added twenty-five per cent to the value or ex- 
changeability of the cotton. He has increased the wealth 
of the world so much. He, therefore, has produced value. 
Such transactions are useful alike to the producer and to 
the consumer of the articles transported. 

In so far as the transportation of products gives them 
value, it belongs to the present general division of the sub- 
ject ; but its methods and agencies are so unlike those of 
the other forms of production, it is governed by laws so 
peculiar and complete in themselves, it composes so large 
and easily separate a department of inquiry, that it is, for 
the discussion of its principles, placed as a general division 
of the science under the title of " Exchange." To complete 
the sphere of production, we recognize here the share it has 
in creating values ; but the means by which this is effected, 
and the impressive phenomena exhibited in the operation 
of this agency throughout the entire world, are set apart 
for special consideration. 

"We have thus gone through the three forms in which man 
modifies matter to create values, — transmutation, trans- 
formation, and transportation. The inquiry will at once 



30 PRODUCTION. [BOOK II. 

occur, whether these exhaust all possible efforts in pro- 
duction. The answer may come out more clearly if we 
proceed by an illustration. 

The chemist, — what is his position in the world of val- 
ues ? He has been ranked, by some scientific writers, among 
the agricultural class, because he so aids and directs the 
processes of Nature as to produce objects of value by chang- 
ing the elementary powers of acids and alkalies into salts, 
&c. That is, he transmutes. It seems more accurate to say, 
that he belongs among producers just so far as he assists in 
any one of the three forms defined. He works by the side 
of the agriculturist, helping how best to direct the labor of 
the farm. Here the chemist produces value. He works by 
the side of the manufacturer, with lubricants and solvents, 
removing obstacles which no muscular strength could shake ; 
and here, again, he produces values. He may, also, labor 
by the side of the merchant, making much cunning use of 
Nature ; and here, again, he produces values, in the form 
of transportation. From each he receives remuneration in 
proportion as he renders service. 

The division we have made of production into three 
modes seems to afford the best view attainable of the sub- 
ject. It will be observed, that these are not distinct forms 
in which labor appears, as in so many moulds ; but that they 
result from an arbitrary classification of individual efforts, 
according to the best reason of the case. The whole 
authority of such a classification consists in this, — that it 
is more complete and definite than any other which is 
offered. 

All these forms of productive effort may be united in a 
single commodity ; and, indeed, there are but few products 
which do not contain them all. To the agriculturist has 
been attributed the work of transmutation. Yet, practi- 
cally, he performs every function of human labor ; and, 
directly or indirectly, uses nearly every known agency of 
Art or Nature. The manufacturer has the work of trans- 



CHAP. IT.] CONDITIONS OF THE HIGHEST PEODUCTION. 31 

formation ; but he can only create values by mingling his 
labor with that of the agriculturist and the merchant, and 
thus the final product is the property of all. By what 
principle, and through what force, the remuneration of 
each is determined, will appear under the title of " Distribu- 
tion." Such, then, are the general forms in which man 
puts forth his efforts for the satisfaction of his desires. 



CHAPTER II. 

CONDITIONS OP THE HIGHEST PRODUCTION. 

If labor, through some form, produces all wealth, we are 
led to inquire into the circumstances and conditions that 
increase or diminish the efficiency of this great force. 
That there are mighty variations as it appears in different 
countries, and even in adjacent communities, is so manifest 
as hardly to require mention or illustration. 

If the wealth of any nation cannot be determined merely 
by the proportion of its population to that of the world, or 
of its territory to the general mass of the globe, — as it 
clearly cannot, — the question, Why ? introduces us to the 
discussion of all those influences which directly or. indi- 
rectly, immediately or remotely, make one to differ from 
another. These may be classed as follows : — 

Division of Labor. 
Co-operation of Capital. 

Economic Culture. 



32 PRODUCTION. [BOOK II. 

CHAPTER III. 

DIVISION OF LABOR. 

In some countries, a man wishing for a chair goes into the 
forest, fells a tree, carries the timber to his workshop, forms 
the parts, and puts them together into a chair. It is a 
rude and imperfect article, but it has cost him the labor of 
two days. 

In other communities, we find a chair, equally service- 
able and far more elegant, produced by the labor of half a 
day. Here one man cuts the timber, another transports 
to the mill, another saws it into suitable dimensions, an- 
other forms the legs, another the seat, another the back, 
another puts the parts together, while still another paints 
it. A great many chairs are produced by the combined 
labor of many individuals ; and the result is, that one chair 
has the value of only half a day's labor. Three-fourths of 
the labor employed in the making of chairs is, then, liber- 
ated, to rest in idleness, or to apply itself to further pro- 
duction with still increasing results, as the desires which 
control efforts shall determine. We cannot be ignorant, 
that, in some communities, labor, when set free, does waste 
itself in idleness and frolic. But this is true chiefly of 
those in which leisure is bestowed, not by man's con- 
trivance, but by the generosity of Nature. Here the power 
of labor is too often corrupted by the very luxuriance of 
growth, which gives it great opportunities, and opens a 
world to its easy conquest. 

But it may safely be assumed, that such an industrial 
genius in a people, as seeks to lessen present labor by the 
distribution of its several offices, will find fresh objects of 
desire. The very thoughtfulness and care, the social con- 
fidence, and mutuality of service, which are required to 
effect a division of labor, insure such a susceptibility to new 



CHAP. III.] DIVISION OF LABOR. 33 

industrial wants as shall necessitate the employment of all 
the labor so relieved. 

The savage who can provide himself with clothing, shel- 
ter, and food in twenty days of the year, may be willing to 
spend the rest of the time in doing nothing. But it was 
never heard that men came together to do any thing, and 
remain content to do nothing more. The full discussion 
and illustration of this principle, which governs the use 
of labor saved, belongs to the third inquiry; viz., that of 
" Economic Culture." We have here, strictly, to show only 
how labor is saved by the division of employments. This 
forms the great fact of modern industrial civilization. We 
shall find it the most important condition of production, 
multiplying all its powers faster than the soil multiplies the 
seed. Here is more of the explanation of wealth than can 
be found in all other inquiries. This force is being rapidly 
introduced into every department of industry, and will 
finally become as general as the nature of the different 
employments will admit. We do not find that it has yet 
reached its ultimate limit in any sphere of human activity. 
We shall give its phenomena and its principles special at- 
tention ; for the greatest interests of society, moral as well 
as economical, connect themselves with it. 

What is the significance of division of labor, as expressed 
in the fewest words ? It is, that each workman confine him- 
self to a single operation. 

In this way, all great and successful manufactures are 
carried on. 

Take, for illustration, that of boots. One person cuts the 
fronts ; one crimps ; one cuts in ; one cuts out the backs, 
one the linings ; one pastes together ; one strips out the 
sole leather ; one cuts the soles ; one makes the heels ; one 
stiches the backs ; one sides up ; one binds ; one bottoms ; 
one buffs ; one trees ; one packs, marks, &c. Here are six- 
teen persons employed in the production of a single boot. 
In many cases, a still further division of the parts is made 

3 



34 PRODUCTION. [BOOK II. 

with success. In passing, it may be remarked, that, of those 
operations, seven are performed by the aid of machines, as 
distinguished in popular acceptation from tools, which latter 
are controlled by the hand, and have all their motive power 
in the muscular force of man. 

As long ago as Adam Smith wrote, it took sixteen per- 
sons to make a pin. 

Such, in description, is division of labor. Let us con- 
sider its advantages, limitations, and disadvantages. 



CHAPTER IV. 

THE ADVANTAGES OF DIVISION OF LABOR. 

1st, It gives increased dexterity. All common observa- 
tion testifies how rapid and accurate our motions become, 
when confined to a single operation. The juggler is not 
more remarkable for the nice use of his muscles, than is an 
accomplished mechanic at his bench. The powers of his 
body are in perfect discipline. They have learned their 
parts, and obey instantaneously and harmoniously. The 
more simple the movement assigned, the greater will be the 
efficiency of performance. 

2d, It allows the workman a better knowledge of his 
business. This is to the mental powers what the first is to 
the bodily. It gives intellectual dexterity. The man has a 
mastery of his special operation. He knows more about it 
than if he had two things to think of and care for. He 
becomes shrewd in every motion. He adapts his labor to 
the material ; he discriminates between the qualities of 
that material. He meets the little difficulties of his work 
with more skill and less waste. These two advantages of 
the division of labor are shown in the different wages which 
skilled mechanics obtain as compared with unskilled, able 
seamen with landsmen. 



CHAP. IV.] ADVANTAGES OF DIVISION OF LABOR. 35 

3d, It saves time, in passing from one work to another. 
In the making of a chair after the primitive fashion we 
have supposed, a great deal of time will be spent in passing 
from one part of it to another, from the place of one opera- 
tion to that of another. And, even where we suppose a 
laborer to be engaged in two operations only, there is still 
a loss inflicted, just as often as he has occasion to leave one 
for another. It is not a loss alone of the time physically 
necessary in effecting the transition, but each operation will 
leave something to harass the mind in the other. During 
the first part, the attention will be distracted by what has 
just been left. During the last part, the attention will run 
on, anticipating what is to come. The shadow is cast both 
ways upon the mind. 

4th, It facilitates the invention of tools and machines. If 
a treasure of gold or iron or oil is hid under the ground, the 
discoverer is more apt, other things being equal, to be the 
man who owns the land, and resides and works on it, than 
a casual visitor. So, if there is a possibility of adapting 
foreign forces to the production of values, the inventor will, 
on the same condition, more probably be the workman than 
any one else ; he is constantly engaged upon the operation ; 
he desires, of course, to simplify it, since it is a law of mind 
to do as little work as possible for a certain result ; he 
knows the wants of the subject ; he knows all the capabili- 
ties of his material ; he thinks about it all the time, and can 
try an experiment without changing his place. Therefore, 
by the logic of Nature, he invents. And, in fact, few of the 
great aids to industry have been discovered by disinter- 
ested science. They came from the laboring brain of the 
mechanic. Where the work was almost too delicate for 
human eyes, a thousand iron fingers go around to do it, 
never losing their nimbleness, nor ever getting weary ; 
where the work was too great for human strength, monster 
arms swing the hammer, or toss the load in air. 

The history of American manufactures expounds the 



36 PRODUCTION. [BOOK II. 

phrase, " Necessity is the mother of invention." Even the 
slaves of the South have heen directed to important mechan- 
ical discoveries, in the way we have described. One simple 
operation, constantly employing the attention, must, in time, 
lose all its secrets. 

5th, It secures the better adaptation of physical and men- 
tal abilities. No consideration is more vital than this. The 
work which man finds to do, the efforts he has to make 
for satisfactions, however high his wants may rise, will be 
of the most various character, and require the most diverse 
powers. There are operations which demand great strength ; 
others, rapid motion ; others, good judgment ; others, a 
mechanical eye ; others, fidelity and trust ; others, high 
intelligence and education. Such qualities, even those 
purely physical, are not found equally in all ; nay, by the 
compensations of Nature, they are generally, though not 
necessarily, found apart. Therefore, unless work were 
divided according to the several qualities required, a defi- 
ciency in one would neutralize all the others, and exclude 
the workman from employment, or compel him to work at 
great disadvantage. 

The extensive applications of this principle will occur to 
every mind. Each man finds the sphere of his highest use- 
fulness as he is endowed by Nature. Those who are gifted 
with education and ingenuity devote all their time and 
energy to duties appropriate to such powers. They thus 
confer on others the advantage of their own gifts, and are 
themselves spared from drudgery and uncongenial labor. 
The poorest in qualifications, also, find a place in which 
they can produce within the great partnership of society. 
Women are enabled to undertake business of the most deli- 
cate and important character, to which their strength is 
sufficient ; while children of all ages take parts that would 
otherwise occupy men. The power saved or gained, by 
such an adaptation of talents to special branches of indus- 
try, is incalculable. Without it, a great part of the human 



CHAP. IV.] ADVANTAGES OP DIVISION OP LABOK. 37 

race would be helpless paupers, and the remainder would 
earn a scanty and miserable livelihood. Man working by 
himself is a poacher on the domain of Nature ; men, in 
industrial society, found empires, build cities, and establish 
commerce. 

And not merely do all find in a proper division of labor 
their full occupation and fair reward, but the work of each 
is just as truly productive as that of any other. The boy 
who watches crows does as much at that business as the 
bravest and greatest of earth. He takes the place of some 
one who goes away to do a larger work. In anthropology, 
this is only a boy ; in political economy, he is a man. He 
and the other make together two men. 

6th, It increases the power of capital in production, tends 
to concentrate manufactures in large establishments, and 
reduce profits. 

Supposing all 'men equally capable of carrying on inde- 
pendent business, which is not the case, — if we compare 
seven men each with a capital of $1,000 and one man with 
a capital of $7,000, we shall find the economical advantage 
greatly in favor of the latter. The former must do busi- 
ness on a small scale, and purchase materials in small 
quantities. The latter can buy at wholesale prices, can 
afford to go often to market, and to keep himself well in- 
formed, and will sell as well as buy to great advantage. 

In addition to this, the" large manufacturer can afford to 
work for a smaller rate of profit. 

A single hatter, for example, who makes only $2,000 
worth of hats, must secure 25 per cent, in order to have a 
net income of $500 ; while the man who can make $20,000 
worth of hats will, if he realize only 12-|- per cent, have an 
income of $2,500. A cotton manufacturer, who makes 3,000 
yards per day, or 900,000 per annum, if he gets but half 
a cent per yard profit, has an income of $4,500; the man 
who makes but 300 yards per day, at one cent per yard, 
or double the profit, gets but $900. 



38 PRODUCTION. [BOOK II. 

We see from these illustrations why the great establish- 
ments drive smaller ones out of the market. A tendency 
to a reduction of profits is a natural consequence of this. 
Therefore, other things being equal, it is desirable that 
manufacturing establishments should be sufficiently large 
to secure all the advantages of concentrated capital, and 
effect the complete division of labor. 

7th, It shortens apprenticeship. 

Every art, trade, or profession must be preceded by an 
apprenticeship, more or less extended, according to what is 
necessary to be learned. A trade, which, in order to be 
perfectly understood in all its parts, requires an apprentice- 
ship of seven years, — if it be subdivided into seven different 
operations, may, it is evident, be obtained with as great a 
degree of. perfection by an average, in each branch, of one 
year's service. Some of the parts may require more than 
one year, others less. 

Now, we find this to be practically true ; and the result is 
a great saving of time, and time is money. 

For example : — 

Seven men serve seven years each to learn to make hats, 

— in all, a service of 49 years 

Seven men serve one year each to learn to make a 

seventh of a hat, equal to 7 „ 

Saving of 42 years 

in the mechanical education of every seven men employed in this 
manner. 

Apply this principle to the manufacturers of Massachusetts, which 
has at least 75,000 skilled workmen, and suppose the apprentice- 
ship to be seven years, we have — 

75,000 at 7 years each 525,000 years 

75,000 at 1 year each 75,000 „ 

Saving of 450,000 years 

in one generation of skilled workmen. 

It will be observed that these are years of apprenticeship, 



CHAP. IV.] ADVANTAGES OF DIVISION OF LABOR. 39 

not of labor. In considering what is the saving to the 
wealth of the country, we must estimate the amount of 
values created by these workmen during the apprenticeship 
under the first system supposed. Per contra, we must take 
into account the greater amount of material destroyed in 
teaching each man to do all the parts, and the greater inter- 
ruption of the employer or journeyman. 

If we suppose these years, saved from apprenticeship, 
to have an average value of $200, we have a saving of 
$90,000,000 for each generation of skilled workmen in Mas- 
sachusetts. 

The principle, under which this saving of time is made, 
cannot be disputed. . 

8th, It gives opportunity for greater social development, 
and increases the social power of labor. 

This is immediately of moral interest ; but it has impor- 
tant economic bearings. The principle itself is indispu- 
table. Not only is the workman brought near his fellows, 
and, by such contact, stimulated to industry, to acquisition, 
to taste ; not only does such association of purposes and 
means afford more of the instruments of intellectual ad- 
vancement, — schools, lectures, churches, journals ; not only 
does the close neighborhood of mind quicken and brighten 
all the faculties, teaching by example, and firing by con- 
troversy ; but, by such association, workmen are brought 
nearer their employers, have a greater sympathy and co- 
operation, act intelligently and harmoniously as to their 
rights, and form a public opinion among themselves which 
has often been found a great power, economically and civilly. 
Such an association, moreover, brings the workman nearer 
the government and the public force ; sometimes for evil, 
but often for good. A population thus concentrated is 
capable of prodigious impulses. All the artisans of the 
empire are not equal to the mob of the capital. Govern- 
ment knows and respects the power of this class, no matter 
how fully disfranchised it may be in the law. 



40 PRODUCTION. [BOOK II. 



CHAPTER V. 

THE LIMITATIONS TO THE DIVISION OF LABOR. 

But the great principle of division of labor, so very bene 
ficial in its operations, is yet limited by certain conditions, 
which it cannot disregard. 

1st, When the principle has been so far applied that each 
operation has been made as simple and fully a unit as 
human ingenuity can devise. Beyond this, there is no 
division, but only repetition. Any attempt to refine the 
process so far as to give the workman less than one natu- 
rally complete motion of the body, will only embarrass and 
delay industry. 

2d, When the concentration of capital has become so 
great that interested personal supervision cannot be brought 
to bear upon each department, and upon the whole enter- 
prise, with sufficient intensity to insure efficiency and fidelity 
on the part of those employed, and harmony in the general 
conduct of the business. Beyond this point, the advantages 
derived from the power of concentration are neutralized. It 
may even become mischievous. It is well that there should 
be limitations, because they prevent such aggregations of 
capital as would swallow up the whole industry of a state. 
Experience shows that the greatest establishments are not 
always or generally the most profitable. Those which are 
large enough to secure all the real advantages of concen- 
trated capital and combined effort, yet are small enough to 
be brought under direct, personal, interested supervision, 
are the most beneficial to their owners and the public. 

3d, Where the industry consists of an indefinite number 
of parts, yet the special circumstances will not allow each 
workman profitable employment in a single operation, — for 
example, agriculture in most of its branches : first, from 
the fact that its operations cannot be sufficiently localized ; 



OHAP. V.] LIMITATIONS TO DIVISION OF LABOE. 41 

and, second, from the necessities of the seasons. No depart- 
ment is capable of so much subdivision as this ; yet, in 
practice, none experiences so little. In mining, the fish- 
eries, and many incidental matters, it is effected to a 
considerable extent ; but, in most of the parts of pure 
agriculture, it has very limited range. Boys and women 
are indeed made useful in it, but they have not the same 
continuous and profitable employment as in manufactures. 
Nor does their work correspond precisely with what is 
required in our definition of the division of labor. They 
are occupied, generally, not in one operation so much as in 
a miscellaneous class of light duties, too variable to realize 
the dexterity and thoroughness obtained elsewhere. 

There are other instances which seem to approach near 
to the conditions of the highest efficiency. Some persons 
are employed for an entire community to plant, to graft, or 
to team ; but not only does the extent of territory limit 
their application to a single pursuit, but the change of the 
seasons drives them from one to another almost every 
month. Stock-raising, and gardening for large markets, 
afford the best American example in agriculture ; yet each 
of these is not only a considerable department in itself, 
but whoever engages in either of them must do much 
not directly connected with it. 

The culture of the grape realizes, perhaps, as fully the 
mechanical advantage of division of labor as any in agri- 
culture. 

But, generally speaking, the farmer is a laborer of a 
thousand duties. 

This fact alone does not account for the different pro- 
ductiveness of the manufacturing and the agricultural inter- 
ests. In the nature of their objects, it is found that 
machinery must be applied to them in far different propor- 
tions. The mechanic arts, which can be localized to the 
highest degree of concentration, and made general to all 
seasons of the year, admit also of prodigious multiplication 



42 PRODUCTION. [BOOK II. 

by artificial agents. From these considerations, we deduce 
the principle, that the value of agricultural products, as a 
class, — that is, their power in exchange for products other 
than agricultural, — will be constantly increasing. A bushel 
of corn, in 1820, would purchase only four yards of cotton 
cloth. In 1860, it would purchase ten yards of the same 
or better quality. This difference will continue to grow 
wider and wider as the mechanic arts advance ; but not 
indefinitely, inasmuch as the materials of manufactures are 
always themselves of agricultural origin, and hence the 
depreciation of the price is limited. 

"We have thus far spoken of the division of labor as 
applied only to direct, material production, affecting the 
laboring classes, and those immediately superintending 
them ; but the principle has been extended to mental labor, 
as well as that which is siniply muscular. 

The professions known as the learned, and others which 
have an important though indirect agency in production 
(for, unless they have some agency in production, we have 
nothing to do with them here), naturally divide themselves 
into branches more or less numerous and special, as occa- 
sion offers. The recognition of professions and industrial 
classes is itself a tribute to the great principle of the divis- 
ion of labor ; but it proceeds still further, to assign special 
functions, within those professions and classes, to individual 
members. 

Thus the law, when a sufficient concentration of legal 
labor is secured, branches into the departments of titles 
and conveyances, of insurance, of marine losses, forfeiture 
and salvage, of patents, of criminal jurisprudence, &c. In 
medicine, the eye, the ear, the skin, consumption, fevers, 
cancers, have each their own practitioners. 

That science and skill are promoted by such subdi- 
vision, and that the immediate efficiency of professional 
labor is greatly increased thereby, cannot be intelligently 
questioned. 



CHAP. VI.] DISADVANTAGES OP DIVISION OP LABOE. 43 

As any community advances to a higher civilization, 
specialties are more and more resorted to. Individuals, 
finding themselves peculiarly adapted by their talents and 
tastes to a particular calling, or having unusual advantages 
for the pursuit of it, give themselves up to that object. 
They concentrate upon it their thoughts, their time, and 
their resources. They excel. They know more, and can 
do better, in their chosen line than those about them. This 
gives them position and power. They are sought for, are 
looked to, because they have something that is wanted. No 
matter how humble his station, or how minute his field of 
investigation, if a man understands something perfectly, his 
world — whether a hamlet or an empire or the race — will 
resort to him. He becomes a benefactor of society. He 
receives its honors and rewards. There is no person in 
any position in life, however exalted or lowly, who may not 
advantageously cultivate a specialty. 



CHAPTER VI. 

THE DISADVANTAGES OP THE DIVISION OP LABOR. 

1st, It tends to enervate the laborer, because it does not, 
as a general fact, give full activity and development to all 
the functions of the body. 

We shall proceed to show that this is true of those classes 
who perform what we have designated as material labor, 
while the very distinction of mental labor implies such a 
separation between the natural functions as seems not to 
consist with the best physical condition of those engaged, 
Common observation will affirm that this is strikingly true. 
It is not necessary, but the tendency exists. 

In the material occupations, it is found that confinement 
to a single operation is often highly injurious. There are 



44 PRODUCTION. [BOOK II. 

forms of labor which sufficiently exercise the several parts 
of the body. The mere fact of uniformity of motion brings 
no objection to such as these. But there are those which 
require the constant fatiguing use of some member, to the 
injury of the rest of the body ; others require a cramping 
posture that oppresses and disorders the vital organs ; 
others still require the workman to poison his blood with 
unwholesome gases. In the great centres of capital and 
labor, — whether we regard the mill, or that larger mill, 
the city itself, — it is notorious that distortion, paralysis, 
and organic feebleness, are more common than where labor 
is diffused, and the laborer changes his work and his place 
frequently. 

That this will occur in the course of all manufacturing 
industry is probable. That it is inevitable does not so 
clearly appear. The sanitary arts keep even pace with the 
advance of machinery. The civil war in America developed 
astonishingly the resources, which are at the command of 
government, to suppress malaria, and reform the habita- 
tions of disease. The growth of manly sports, and the 
cultivation of gymnastics for health's sake, are likely to 
work a great change for the better in the sanitary conditions 
of our people. The intelligent precaution of operatives in 
every country, where their remuneration is any thing less 
than robbery, can guard against all excessive derangement 
of the bodily functions. 

It is perhaps significant to the question whether the 
application of the bodily powers to a single continuous 
action is really in practice injurious, that we find in the 
statistics of Massachusetts, ranging over sixteen years, 
the average life of " laborers having no special trades " to 
be less by two years than that of " active mechanics in 
shops." 

Mechanical operations were formerly considered as dis- 
qualifying for military service ; and even our modern phi- 
losophy has found in them a reason for the employment of 



CHAP. VI.] DISADVANTAGES OF DIVISION OF LABOR. 45 

mercenaries, and the maintenance of standing armies. But 
the great civil war just referred to exhibited the novel fact, 
that, beyond all dispute, the troops raised in agricultural 
districts are not so hardy in the privations and exposures of 
camp and field as those coming from the towns. This does 
not, however, imply a better state of health at home. It 
may be, that the latter class find, in the constant exercise 
and the out-door employment, just that change of habit and 
condition which they needed. All that is different from 
their usual course of life is in the direction of more air and 
light and. motion; while the agricultural laborers find no 
change except for the worse. They have been accustomed 
to active employment ; but the harsh necessities of the ser- 
vice come to them fresh and strong. It is perhaps the 
direction of influences more than the degree of them which 
determines these matters of health ; or it may be, that 
mechanical occupations, contrary to general opinion and 
in spite of some plain drawbacks, do tend to compact the 
frame and the sinew, and lend force and vitality to the or- 
gans. Whatever the explanation, we will rest with the fact, 
that, in the severe trial of strength and endurance made by 
the war, the mechanical occupations have not been dis- 
credited. 

2d, This system, in some of its applications and in certain 
degrees of extension, does not give that full employment 
and expansion to all the powers of the mind which its nor- 
mal development requires. This is obvious. The mind, if 
intensely devoted for a whole life to a single effort, and that 
perhaps of the most simple kind, cannot but be unfavorably 
affected. Unless counteracting influences are resorted to, 
it will undoubtedly be contracted and enervated. 

To this liability are opposed three compensations : — 

a. The great communicativeness observable in such cir- 
cumstances, the eager discussions, the free inquiry, the 
school, and the lyceum. 

b. The saving principle that the employment of one mem- 



46 PRODUCTION. [BOOK II. 

ber is, to a certain extent, the employment of all. The 
human faculties, mental and physical, are a knot. They 
interpenetrate so completely that it is impossible to move 
one without affecting the rest. If we compare the mind to 
a reservoir, we may say that the individual powers and dis- 
positions flow out of it as so many streams ; but there is 
nothing to prevent them from flowing back, if the level is 
sufficiently disturbed. The special use of one may develop 
it greatly ; make it more strong and active than the others. 
But such a predominance is not distortion. Few minds are 
capable of even and temperate growth. In this principle 
resides the variety of human character. It may be ques- 
tioned whether any but the most gifted can be educated in 
any other way so thoroughly and efficiently as by interested 
application to some single matter. Generalization and broad 
philosophy rouse the full powers of but few intellects. In 
the majority of cases, it will remain true that intense, spir- 
ited, persistent labor directed to one point is better than the 
languid, nerveless, unspurred, rambling play of all the fac- 
ulties. Mind, to be energetic, must not be republican. The 
powers must be centralized. Some must be despotic. 

Indeed, the argument against division of labor on this 
score would be better expressed by saying, that the constant 
repetition of single acts so far dispenses with thought, and 
even with consciousness, in the operation, that it makes man, 
in some sense, a machine. This is, to a considerable extent, 
true ; the compensation being that it affords a greater op- 
portunity for discussion and reflection, if the workman 
chooses to avail himself of the kind of mental leisure which 
is afforded by the monotony of his occupation. It is, there- 
fore, not the excessive use, but the disuse, of the intellect- 
ual faculties, that is to be feared in those arts to which labor 
has been carried to its fullest division. 

c. The laborer is not all workman. While his special 
occupation provides for his subsistence, and endows him 
with energy, industry, and concentrativeness of mind and 



CHAP. VI.] DISADVANTAGES OP DIVISION OP LABOR. 47 

character, lie has other hours and other duties, ample, if 
reasonably used, to compensate for all the evil mental 
effects of his continuous toil. 

It will be observed, that it is only to the division of labor 
beyond a certain point, that the objections we have discussed 
have any application. A more ill-developed society, with 
more ill-developed members, could not be conceived than 
where this principle was not applied at all. In fact, there 
could be neither members nor society ; but here and there a 
savage would bask in the summer sun, or hide himself in 
the storms of winter, in hopeless, helpless barbarism. 

However we may speculate, a priori, on the consequences 
of dividing minutely the parts of labor, we may perhaps 
get a stronger light and a better view by observing the 
mightiest experiment of industry ever known in the world, 
— that of England to-day. Nowhere are the natural advan- 
tages of agriculture more apparant ; nowhere has manu- 
facturing been more elaborated. Yet no person can be 
cognizant of the condition of the English population, with- 
out being assured that the manufacturing, laboring class is 
almost immeasurably above the agricultural in intelligence, 
in independence of character, and obedience to law. Prob- 
ably the most conservative nobleman of the realm would 
admit that the former class is far better qualified for the 
franchise than the latter. 

3d, It will follow, from what has been already urged, that 
division of labor, in its greatest extension, has a tendency, 
or at least there is found in it a liability, to lower the 
average of health, to shorten life, and prevent the natural 
increase of population. 

All these results are found, on examination, more or less, 
but still above the general facts of the country, in all the 
great centres of manufacturing industry, where the full pos- 
sibilities of the mechanic arts are realized by the intense 
subdivision of labor. This result can only be partially and 
confusedly shown by statistics : still enough can be ex- 



48 PRODUCTION. [BOOK II. 

tracted to assure us that there is a great loss of vital 
energy, whether or not it is necessary to such a state of 
industry. 

The American average of life may be expressed nearly as 
follows : * — 

Cultivators of the earth G4 years. 

Active mechanics out of shops .... 50 „ 

Active mechanics in shops 47 \ „ 

Inactive mechanics in shops 41 \ „ 

Laborers, no special trades 45 J „ 

These statistics, accurately gathered and showing the 
results of many years, require " correction " in several par- 
ticulars, if the real lesson of them is to be obtained. In 
the first place, two-thirds of the class of mechanics as pre- 
sented here are engaged in such occupations as do not 
allow any very extended subdivision of the parts, so that 
the average of the great manufacturing establishments and 
their dependent cities would be found still more striking. 
In the second place, the agricultural occupations are con- 
tinually making contribution to manufacturers of their best 
blood and bone, renewing the natural waste of the mill and 
shop, and so interfering with the statistics of the subject. 
This element can neither be eliminated nor determined. 
We shall rest satisfied with knowing it is there. So impor- 
tant is it at times, that Lowell appears on the tables as one 
of the healthiest cities of America. It is unquestionably 
true that much of the historical feebleness and mortality of 
such places has been avoided by more humane and intelli- 
gent precautions, by gymnastic sports and out-door games, 
and by a better adaptation of all the conditions of produc- 
tion to the necessities of life and well-being. But the great 
fact which accounts for this seeming healthfulness of a 
manufacturing city is the constant infusion of the fresh, 
vigorous, young blood of the country. 

* Massachusetts Registration of Births, Deaths, and Marriages. 



CHAP. VI.] DISADVANTAGES OF DIVISION OF LABOE. 49 

It is not necessarily a disadvantage in this respect, that 
manufactures, in their greatest centralization, prevent the 
full natural increase of population. Indeed, it is a bene- 
ficent provision of Nature which checks propagation in 
precisely those circumstances where the offspring is less 
likely to receive that nourishment and care and exercise 
which shall secure its best development. Far from being a 
misfortune, it is well that those who are to live in the cities 
should be born in the country, and get size and strength on 
the hills and in the open air. This tendency does not go 
so far as to deprive the dwellers in the cities, and the work- 
ers in brass and wool, of the cares and the pleasures and 
the culture of paternity. Yet the law that men shall be 
born upon the land is as clear in history, and in our com- 
mon observation, as any fiat of Nature. 

4th, The division of labor lessens the number of those 
who do business on their own account. This is a natural 
consequence of what has been shown. We have said that 
capital has a tendency toward concentration ; and, if it be 
aggregated, labor must also be. The result of this, in agri- 
culture, is to absorb the yeomanry into the class of those 
who labor by the day or month, with no interest in the 
land. The result in manufacturing is to subordinate hun- 
dreds of operatives to the control of a single will. This 
has a threefold relation : a. To the formation of character. 
Something of independence and self-respect is unquestion- 
ably lost, so far as these depend on external conditions. 
Position and responsibility do foster and strengthen man- 
liness and self-mastery. By the division of labor, the 
independence of each is sacrificed to the good of all. It 
will not be doubted, that, on the whole, it is desirable that 
it should be so ; nor can it be denied that there are partial 
drawbacks, even in this plain tendency of civilization. It 
is the sacrifice man has to make in society, in industry, in 
government, b. To the fairness of remuneration. A very 
few now participate in the profits. The great bulk of 

4 



50 PKODUCTION. [BOOK II. 

workmen receive only wages, and that on temporary engage- 
ments. This disproportion may be excessive, and is likely 
to be where laws or institutions check enterprise, and 
discourage individual effort. In such cases, laborers are 
practically a herd of cattle, driven about from place to place, 
receiving bare subsistence, and unable to mend their con- 
dition. This is a lamentable state of things ; an abuse of a 
good principle. No one can deny, however, that the worst- 
treated operatives of the civilized world receive infinitely 
more than if the efforts of men were all individual and 
independent, and each was left to satisfy his wants from 
the primitive resources of Nature. But, even if we come 
forward from the barbarous state to that in which the work 
of man has divided itself into numerous trades, each of 
these, however, yet remaining distinct, and compare this 
with the present state, in which trades have been repeatedly 
subdivided, — capital aggregate and labor subordinate, — 
we shall yet find that the share of the poorest laborer in the 
mighty product of our industry of to-day is greater than 
ever before. Augustus, says Arbutlmot, had neither glass 
to his windows nor a shirt to his back. 

Thus much could be urged of the wretchedest operatives 
on the earth ; but, when we regard the condition of labor' 
as it exists in nearly all the countries of the world, we shall 
quickly confess, that, though the laborer has given up his 
share of profits, he receives back, as wages, far more objects 
of desire than he could have obtained in the old way. c. To^ 
the steadiness of employment. By the attraction of labor 
to great centres, the fate of many laborers is made depend- 
ent on that of a few capitalists. This is a great fact, 
scientifically and historically. It must continue. It has 
issued, in the past, in the form of great industrial distresses, 
of a general suspension of mechanical labor from causes 
affectiiig only the mercantile credit of the employers, of 
frantic appeals for support, of laws in which government 
assumes the duty of providing work for its whole popula- 



CHAP. VI.] DISADVANTAGES OF DIVISION OF LABOE. 51 

tion, of riots and revolution. So far as this will occur in 
spite of prudence and careful management, it is the con- 
dition on which we have the advantages of division of 
labor. Men cannot cross the great ocean alone. They 
must go together, have help of each other, and embark 
their fortunes on a common bottom. More of them would 
perhaps be safe if each was on a ship of his own ; but that 
cannot well be. 

Even in regard to steadiness of employment, the -aggre- 
gation of capital and consequent division of labor assist 
the workman up to a certain point. That point is the great 
catastrophe which no structure can withstand. Then, the 
greater the structure, the more completely it crushes the 
laborer. 

Where capital is concentrated, it is stronger, protects 
itself better ; and, of course, the workman shares in this 
power and immunity. Where the industry of thousands is 
controlled by the mind of one, it will be more intelligently 
and harmoniously administered, and with a larger view of • 
the business. By such superiority of union in production 
(for that is synonymous with division of labor) , the industry 
of a country is lifted clean over obstacles which individual 
enterprise could not pass, — is preserved amid storms that 
would shatter the feeble fabric of single hands. Industry 
in masses, when it receives a shock, can hold on to the accu- 
mulations of the past and to the credit of the future, and so 
stands firm. 

But when the blow becomes so heavy as to shatter even 
the great workshops of modern industry, and they come 
down, then truly the fall is great. The ruin is more com- 
plete than if the storm had prostrated a village of huts. 
The reservoir of gathered power has burst ; the springs 
have long since been broken down ; the wells been filled 
up ; and there is no supply for immediate wants. Such a 
loss is repaired slowly. The trampled grass raises itself, 
and looks up again ; but the oak lies as it falls. Independ- 



52 PRODUCTION. [BOOK II. 

ent has been discouraged by collective industry ; the shop has 
been abandoned for the mill ; each workman has learned 
only the fraction of a trade ; no one can buy, make, and 
sell ; no one dares to undertake any business, foreseeing 
that the corporation must rise again. For a while, all is 
distress. It is only when the stately fabric of associ- 
ated industry is reared again, that plenty is known in the 
land. 

We have discussed, somewhat at length, the relations 
which division of labor holds to the condition of the laborer, 
by depriving him of the opportunity to do business on his 
own account. Until recently, it has been supposed that 
the advantages of the principle could not practically be 
obtained without this defect ; that capital could not be con- 
centrated, and the trades perfected, without diminishing the 
independence and self-reliance of labor. But recent devel- 
opments seem to be anticipating the objection. It is now 
a matter of common practice to admit the laborer to an 
interest in business, — a share in profits. This is done by 
merchants to their salesmen, by master mechanics to their 
workmen, by ship-owners to their hands. All stock-com- 
panies, of whatever character, admit of this principle. 
Mutual industrial associations for trade, mining, and insu- 
rance, furnish its most significant and hopeful applications. 
There is no reason why these should not be extended much 
further by a gradual growth, as they are found convenient 
and profitable. Just so far as a sufficient spring of self- 
interest can be maintained in the effort, both of the employer, 
or manager, and of the operative, so far may mutuality of 
profits be applied to all departments with the most bene- 
ficial results. 



CHAP. VII.] THE DIVISION OP LABOE. 53 

CHAPTER VII. 

the division op labor (concluded). 

We have passed through the discussion of the advantages, 
the limitations, and the disadvantages of the division of 
labor. 

If, now, we inquire on which side the balance lies, there 
will be no question that it is in favor of the application and 
extension of the law. It appears as the great multiplying 
power of modern industry ; it has made the difference 
between barbarism and civilization ; it resides in man's 
being as the principle of help ; it is the only name that 
savage nature fears. 

If we could personify the forces of matter and the treas- 
ures of the earth, holding council how they might escape 
being enslaved or plundered by rapacious man, we should 
hear them say : " Let us spread disunion among our foes ; 
let us convince them that their interests are separate,, and 
lie apart ; let us excite among them suspicion and hatred. 
Then the summer sun shall make them languid, and winter 
shall bring torpor on them. The waves shall overwhelm 
them, struggling singly with the ocean ; the drought shall 
starve, the snow shall freeze them. So will we conquer, and 
be safe." 

And indeed, as if they had so talked, like the councillors 
of a state invaded by a powerful foe, and had so planned, 
we find them for ages deceiving the hearts of men, sowing 
dissension, and enkindling strife by treacherous bounties of 
gold and precious stones, like bribes sent into an enemy's 
camp. Nations fell to quarrelling about the accidental and 
trivial treasures scattered, in fraud of their full rights, upon 
their paths. Great wars were waged to secure paltry bal- 
ances in coin : wealth of continents was disregarded. Men 
stood over against each other, hunted for gold in the dust, 



54 PEODUCTION. [BOOK II. 

neglecting the mighty riches that lay deep in the soil. 
They had no heart to say, Let us help each other, and see 
what we can do. Whole peoples acted, and look now in 
history just as we imagine miners to do when they suspect 
the presence of some great treasure among them ; each 
hunting silent by himself, casting angry glances from under 
steadfast lids ; each heart beating fast with fear and wrath 
that some other may find it first; hateful all, and hating 
one another. 

That this sketch is not exaggerated, let it be said, to the 
shame of mankind, that the Mercantile theory was un- 
doubted till the middle of the last century ; proclaiming as 
truth, and pursuing as policy, the world over, the double lie 
that the only wealth is gold and silver, and that what one 
people gains in trade another must lose. So man had need 
of his fellow only to rob him ; so man had need of Nature 
only to get her gold. 

Palaces and warehouses floating safely on the waves ; 
breakwaters along the sea ; coast-lines of docks and wharves ; 
arterial railroads to the length of the continents ; canals 
connecting oceans ; bridges leaping rivers ; the genii of 
the woods groaning in the windmills ; brook-nymphs grind- 
ing corn in the valleys ; the spirit of the air hard at work 
pegging shoes ; mountains of iron split open ; precious 
crystals, forming for ten million years, strewn about the 
land, — these are the first fruits of man's confidence in his 
fellow. 



CHAPTER VI11. 

THE CO-OPERATION OP CAPITAL. 

This is the second grand condition, through which the 
productiveness of labor is increased. 

We have before spoken of capital: we now proceed to 
define it strictly. 



CHAP. VIII.] THE CO-OPERATION OP CAPITAL. 65 

It is that portion of wealth employed in reproduction. 

The distinction involved is an important one. All capi- 
tal is wealth, but all wealth is not capital. The very use 
of the term " reproduction " testifies to the feeling of man 
that the object of any thing is not fulfilled in its own creation 
or perfection, but that there is an endless series of propa- 
gations, with a constant view, and with increasing force, to 
some ulterior end. And we find that production does go 
forward, not by the increase alone of the laboring class, not 
by mere annual savings and gross accumulation, but by the 
employment of that which before was an object of desire in 
itself, as now a means to the gratification of new desires. 
Since it is recognized that human wants create others of 
their kind, and hence go on increasing in number and ur- 
gency, it is necessary that human efforts should find some 
force having a corresponding rate of increase, by which to 
assist themselves in supplying the growing demand. Such 
an agent is found in capital, which is taken out of wealth. 

A man may have much wealth, and use little capital. 
"Wealth is as it is had; capital, as it is used. For example, a 
man may live in a house worth thirty thousand dollars, and 
have ten thousand dollars invested in a ship, from which he 
derives all his support, and which forms his capital. It 
may be asked, Is not the house itself capital ? It is so far 
as necessary to production, in sheltering the producer and 
his family, even with the style and comfort usual to such a 
degree of society. Beyond this, it ceases to be capital. It 
is devoted, not to the creation of values, but to personal 
enjoyment and culture ; noble and worthy ends for wealth, 
but not for capital. 

We may change the supposition. The man may have a 
house worth ten thousand dollars, and ships to the value of 
thirty thousand dollars. The difference to production will 
be apparent, inasmuch as his active capital now consists of 
three-fourths of his wealth, while before it was only one- 
fourth. 



56 PRODUCTION. [BOOK II. 

It will follow from this illustration, that there is much of 
the wealth of the world which it is difficult to classify 
whether as capital or not, much in which the two ends 
unite, much in which the share devoted to reproduction is 
doubtful. Still, this casts no discredit on the distinction 
itself, which stands manifest to all. There are many such 
principles in political economy, the general direction and 
character of which cannot be intelligently doubted, yet in 
whose particular applications we find difficulties and appar- 
ent contradictions ; just a*s the mountain-ranges stretch 
across the continent, unmistakable in their great course, 
shedding the waters of one slope to the east and of the other 
to the west, making clear separation between the Flora and 
Fauna of the adjacent countries, and forming impassable 
boundaries of empire, yet are occasionally interrupted by 
one cause or twisted away by another, so that we find peaks 
here and there, which a little critic can take his stand upon, 
and deny the geography of the hemisphere. 

How does capital arise ? 

From the net savings of labor. A person who earns five 
hundred dollars a year, and places one hundred dollars of 
it in a savings-bank, or invests it in land or machinery or 
railroad stock, or anywhere at work, has increased his own 
capital and the capital of the country by so much. It is 
not what he lays aside for use in his own occupation merely, 
but for use anywhere. 

All capital comes in this way. A country increases in 
capital just in proportion to the increase of capital accumu- 
lated by its members. If the individuals of a nation apply 
none of their net income to reproduction, there is 113 
increase of the national capital. If they withdraw any of 
their capital to meet personal consumption, the country 
becomes poorer. 

Many of the considerations which pertain to the accumu- 
lation of capital, and the ultimate use of it, belong to the 
discussions of economic culture, or go further on, to the gene- 



CHAP. Yin.] THE CO-OPERATION OP CAPITAL. 57 

ral division of " Consumption." We have simply to do with 
those principles which apply existing capital to the wants of 
present labor. 

Capital is known as " fixed " or " circulating." 

Fixed capital consists of every description of property 
employed in production, which, from its nature, cannot he 
advantageously changed to any other use than that for 
which it was originally designed. The land, buildings, and 
tools of the farmer, the ships and warehouses of the 
merchant, the machines and implements of the manufac- 
turer, belong to this class. They must be used for the 
purposes to which they are particularly adapted, or they 
have little value. They are fixed. The ship cannot be 
used as a wagon, or the spinning-jenny as a locomotive. 

Circulating capital, on the other hand, consists of those 
articles or commodities which can be readily changed from 
one purpose of production to another. Of this class are the 
stock and produce of the farmer, the money and wares of 
the merchant, the raw materials of the mechanic. These 
are easily transferred from one business to another, and 
indeed from one place to another, and may be used in a 
great variety of forms. Of all these, money is the most 
mobile, as it can be changed without delay or loss to any 
occupation or locality. 

Fixed is, in its nature, more permanent than circulating 
capital, not merely in its adaptations, for its name implies 
that, but in its existence. The greater part of circulating 
capital — stock and materials, for example — is held only in 
the immediate view of transmuting or transferring or trans- 
porting it, so that it shall pass into fixed capital. There, 
on the contrary, it has taken its ultimate form. If it loses 
this, it is only by destruction. It does not intend to assume 
any higher condition. 

It is in this way that fixed capital receives the mighty 
annual additions which astonish us on the page of the 
statistician. The products of last year form a part of 



58 PRODUCTION. [BOOK II. 

the houses, ships, railroads, and machinery of the present. 
The farmer adds something to his stock, or his land, or his 
buildings. The mechanic widens his shop, and multiplies 
his tools. The merchant enlarges his business, and extends 
his connections. The laborer saves something out of his 
wages, beyond the demands of immediate subsistence. It 
is in this way that fixed capital is increased by the contri- 
butions of circulating capital. The products of labor are 
generally in this form ; and it is enabled to pay its tribute 
without being itself impoverished. 

In popular language, all wealth is divided into real estate 
and personal property. This distinction, if not scientific, 
is convenient for occasional- use. We must bear in mind, 
however, that, while all real estate is fixed, all personal 
property is not circulating capital. Ships, machinery, and 
many other things not attached to the soil, are personal 
property, though standing in the category of fixed capi- 
tal. 



CHAPTER IX. 

THE CO-OPERATION OF CAPITAL (continued'). 

Is the distinction between productive and unproductive 
capital real ? It has been urged by many writers at con- 
siderable length. It is susceptible of much illustration. It 
involves many important considerations. 

There is, however, no such thing as unproductive capital. 
There may be misapplied wealth, misused wealth, wasted 
wealth ; but capital reproduces. If any discrimination is 
necessary between that portion of wealth which is applied 
successfully to reproduction, and that which is intended for 
such an end, but fails in attaining it, we may say that capi- 
tal is that portion of wealth applied to reproduction, which 



CHAP. IX.] THE CO-OPEEATION OF CAPITAL. 59 

secures a compensation to its owner. Whatever his inten- 
tion, if he uses any part of his wealth without multiplying it, 
it remains wealth; he has not made it capital; it may, 
by unproductive use, cease even to be wealth. Wealth 
put into an enterprise which results in nothing is no more 
capital than wealth put into a house which burns down, and 
probably is wealth as little. 

Nay, more : so far as wealth thus applied, while making 
some return, fails of securing the fair, average remunera- 
tion of capital, it so far ceases to be capital. It may be 
wealth merged for a time ; it may be wealth lost for ever : 
it is not capital. 

A complete illustration of this principle is found in com- 
mon business. Suppose a man to be possessed of fifty shares 
of certain stock, par value one hundred dollars. The en- 
terprise does not succeed ; the stock does not pay adequate 
dividends ; the value of the shares has sunk to fifty dollars. 
Would any one say that his capital, so far, was five thou- 
sand dollars ? Clearly, it is but two thousand five hundred 
dollars. Half of his investment has been sunk ; half is 
capital. 

But it has been urged, that much capital is reproductive 
that does not afford a remuneration to its owner. For 
example : a railroad is projected and built, does not pay ; 
its stock sinks to nothing ; yet, though it does not pay divi- 
dends, it improves the industry of the country through 
which it passes. 

We have nothing to do, in the discussion of production, 
with any such incidental advantages, even if they exist. It 
may be, that, in the consumption of wealth, we shall find 
principles explaining the effects of such an investment. 

In the light of production, however, we can only say, that, 
in so far as the railroad does not remunerate its owner, it 
ceases to be capital. So far as it is supposed to promote 
agriculture or manufactures, and indirectly help the indus- 
try of the community, it is simply on the level of the 



60 PRODUCTION. [BOOK II. 

gratuitous gifts of Nature, — the powers of the wind, rain, 
and sun, or the courses of streams and valleys ; assisting 
man unquestionably, but having no value, being neither 
capital nor wealth. 

A canal that does not pay for its building is no more cap- 
ital than a river. Both may transport commodities with a 
great saving of labor, and with great encouragement to pro- 
duction. The world abounds in natural bridges, causeways, 
roads, mountain cuts, dikes, &c. If a man, with ill advice, 
constructs artificial works of this character, which prove 
failures, he adds just so much to what is gratuitous in the 
world. Economically speaking, it has ceased to be prop- 
erty : it has become common. 



CHAPTER X. 

THE CO-OPERATION OF CAPITAL (continued). 

Having considered the two great agents by which all wealth 
is created, viz. capital and labor, we come to speak of their 
union, and to inquire under what circumstances it will be 
most effective. 

1st, When a due proportion of each is found. Labor 
halts without capital ; capital wastes without labor. Which 
shall govern the other ? Which shall be the fixed quantity 
to which the other must conform ? Labor, certainly, be- 
cause it is less variable in amount. It can be diminished or 
increased but slowly, depending as it does on the propaga- 
tion of the human race ; an element that is determined 
positively, in the old countries, to a very gradual growth, 
and, in new countries, has never more than doubled itself 
in thirty or forty years. Capital, on the contrary, is liable 
to very rapid fluctuations ; can be accumulated, under favor- 
able circumstances, with great ease ; and can be wasted or 
scattered just as fast under different conditions. 



CHAP. X.] THE CO-OPERATION OF CAPITAL. 61 

Labor, then, being that which is most restricted in quan- 
tity, capital must, in order to the highest production, 
conform to it. There must be as much capital as labor 
requires, not as much labor as capital needs. We do not 
put this on the ground of any superior rights of labor. Cap- 
ital is the labor of the past, and has rights as perfect as that 
of the present. 

What this proportion should be in any community, it 
would be impossible to declare beforehand, as it is even 
impossible to decide precisely what it is in fact. Still less 
could a proportion be determined which capital should bear 
to labor in all communities. It is plain that this will vary 
according to the occupation ; .as, for instance, we have seen 
that in agriculture there cannot be so general application 
of machinery as in manufactures ; while, on the other hand, 
because its operations cannot be localized or made inde- 
pendent of the seasons, the number of tools is thereby 
greatly increased ; each farmer requiring certain tools, yet 
not using them to their full capacity at any season, and let- 
ting them lie idle for months. 

The mechanic, on the other hand, while he uses a greater 
share of tool-power, has it yet so arranged that the tools lie 
idle little of the time. 

It is plain that the proportion will vary, also, according 
to the natural advantages a person or community enjoys. 
Expensive clothing and shelter are essential to the support 
of the laborer in some climates ; in others, a piece of cotton 
cloth and a bamboo hut serve for protection the year round. 
In some countries, there is required an immense system of 
pipes and conduits to water the soil, barely to preserve ani- 
mal life ; in others, an equable moisture is preserved the 
whole twelve months without any application of capital. In 
some, strongly constructed and carefully connected dikes 
and levees, extending hundreds of miles, are essential to the 
use of the land ; others were placed high and dry at first. 
In some, the soil is so generous with fruit, that, " if you 



62 PRODUCTION. [BOOK II. 

tickle Nature with a hoe, she laughs with a harvest ; " in 
others, the earth has to be carried in baskets up the sides 
of the mountains. That which, in one country, would be 
capital, acquired by labor and having value, is, in another, 
a free gift. 

For these and other manifest reasons, the proportion that 
should exist between labor and capital cannot be deter- 
mined with any considerable degree of assurance. It is 
plain that there should be as many tools as workmen need- 
ing to use them, else some will stand idle. It is equally 
plain that an excess of tools will not help at all in produc- 
tion. Capital is the instrument of labor ; and the instru- 
ment should, of course, be adapted to the power of the 
laborer and the work to be done. 

By the census of 1860, " the real and personal property 
of the Union was valued (slaves excluded) at $14,183,000,- 
000." * A calculation made at the Treasury Department es- 
timates the products of 1860 at 26.8 per cent of the wealth 
of the country at that time. "Without intending to vouch 
at all for the correctness of this estimate, it is doubtless 
approximately true ; and, if so, we shall be surprised, if we 
look at the large proportion of annual product to the accu- 
mulated wealth of the nation. If, for the sake of conveni- 
ence, we call the annual product 25, instead of 26.8 per 
cent, we find that it amounts to $3,545,750,000 per annum. 
It certainly appears almost incredible that the total amount 
of wealth accumulated in the country since its first settle- 
ment should be only equal to four times the product in 
1860 ; but such we understand to be the statement. If so, 
it shows what an immense proportion of all the wealth 
annually produced is annually consumed. From these fig- 
ures, too, we may make an estimate of the proportion of the 
product which belongs to labor and capital. Allowing for 
the use of the latter ten per cent, in the shape of interest 
and rent, or use, the amount will then stand thus : — 
* Report of the Secretary of the Treasury, 1865. 



CHAP. X.] THE CO-OPERATION OF CAPITAL. 63 

Aggregate national wealth, $14,183,000,000, at 10 per cent, is 
$1,418,300,000, which deducted from the whole product, as before, 
of $3,545,750,000, will leave us the share of labor, $2,127,450,000, 
or about two-thirds of the whole. 

From these statistics, we find that the whole national 
wealth is only equal to about seven times the gross earnings 
of labor for a single year. 

We have also an opportunity of comparing the wealth 
and production of the United States with Great Britain. 
The estimated wealth of the latter, according to Leone Levi 
(see his work on Taxation, page 6), is $30,000,000,000, or 
$1000 per capita ; the estimated yearly production, $3,000,- 
000,000, or $100 per capita. The wealth of the United 
States, according to the foregoing figuring, and taking the 
whole population, as in 1860, at 31,443,321, is $451 each ; 
while the amount of product per capita is $112 each : so 
that, while Great Britain has more than double the capital, 
she has less annual product per capita. This is a confirma- 
tion of the well-known fact, that capital and labor, interest 
and wages, are at least double in this country what they are 
in Great Britain. We must not confound the annual pro- 
duct with the annual accumulation ; the latter being but a 
small fraction of the former. 

Capital should, at least, increase in a degree correspond- 
ing to the increase of population. If it does not, labor is 
crippled, wages fall, and starvation eventually ensues. Ire- 
land may be quoted as an illustration. Her soil, wrested 
from the people by conquest at different periods, from the 
reign of Henry II. to the Battle of the Boyne, has passed into 
the hands of foreigners, who draw away annually all her 
surplus products. Population increases from year to year ; 
but capital does not increase correspondingly. Nay, even 
the waste of the soil and of implements is not fully and 
honestly supplied. 

What is the necessary consequence ? Increasing poverty, 
and ultimate starvation or emigration. We have said that 



64 PRODUCTION. [BOOK II. 

capital is formed from the annual savings of labor. Four 
million pounds a year go from Ireland to absentee land- 
lords, and eight million pounds are taken away every year 
in taxes. The Irish people can make no savings. There 
can be no increase of their capital. Starvation or emigra- 
tion is their inevitable fate. 

Is it possible that there should be a surplus of capital ? 

It is evident that there may become such a surplus, if we 
assume that production itself does not expand in the mean- 
time. Given a certain industry, within defined limits, it 
may become full and overflowing with its accumulations. 
By economy and thrift, these multiply fast, and crowd their 
barriers. Common observation shows this to be often true, 
with the enterprises of individuals. The excess is trans- 
ferred to other branches, or withdrawn for personal gratifi- 
cations. A seamstress, who, by saving, obtains a sewing 
machine, has a wonderful help in her industry ; but a sec- 
ond sewing machine would not assist her a single stitch. 

The same is true of special occupations. The limit of 
profitable production being reached, the amount of capital 
employed cannot well be increased. The product, being 
generally in the form of circulating capital, now flows off 
to other business, or is turned to purposes of adornment 
and culture. 

The same is also found true, though more rarely, of entire 
communities. States and cities sometimes reach the limits 
within which they desire to use capital in their traditional 
industries. They become bankers for the world, or direct 
their profits to sumptuous houses and works of art. Such 
were Genoa and Venice under the merchant princes, who, 
having reached the boundaries of known trade, and brought 
all its machinery to the perfection of existing art, began, 
wisely enough at first, that wonderful career of architecture, 
whose ultimate extravagance exhausted the industry that 
gave it rise, and passed the commerce of the world to 
traders who had not become gentlemen. 



CHAP. X.] THE CO-OPERATION OF CAPITAL. 65 

It is evident, then, that, within the bounds of present 
occupations, capital might easily attain a surplus, increasing 
as it can more rapidly than population. It is productive 
only as applied by labor; and therefore its production is 
limited by the capacities of labor. 

But in fact, and on the whole of things, the limits of 
industry do not remain the same. Wants expand, as we 
have seen. Capital is relieved from its former employ- 
ments, and goes on to new efforts. It can hardly multiply 
fast enough to meet the growing demand. Enterprises 
spring up over night. Capital hardly breathes, for the 
work it has to do. 

We believe that the time when capital shall become excess- 
ive in the world is far beyond the occasions of reasonable 
calculation. It is so distant at the nearest, so doubtful 
every way, as not to be a question in a practical science, like 
political economy. We are not called on to provide for the 
day when all the continents shall be crowded with wealth 
that can find no room to work. When wealth ceases to be 
wanted for capital, it is pretty certain to be consumed in 
luxury. Yet we are not to anticipate the same rapid pro- 
gress at all times and everywhere which we see in a new 
country like our own, full of wants, and stimulated to 
efforts. Capital has its checks, just as population has. 
Theoretically, steady increase is certain in both : practi- 
cally, each meets obstacles ; is lost here, and checked there. 
The forces which operate to stay it may be briefly summed 
up as follows : a certain disinclination of capital to emi- 
grate ; the lessening power of personal supervision from a 
distance ; and a distrust in the administration of foreign 
laws. 

Another constant force operating against the increase of 
capital is found in those wants of man which do not look 
to reproduction. The desire to spend is just as truly in 
human nature as the desire to earn, and can be as accu- 
rately calculated. Hence it follows, that, as the desire to 

5 



66 PRODUCTION. [BOOK II. 

earn loses power by capital becoming plenty and cheap, the 
desire to spend gains force. A man is not nearly as likely 
to use his money for personal gratification when he can get 
eight per cent for it, as when he can get only four. 

Yet, for all these obstacles, capital, when it has supplied 
the demands of labor in its own vicinity, has gone abroad to 
colonize. It has carried on great wars in which it had no 
interest, has developed the resources of infant states, and 
saved old nations tottering to their fall. Capital has gone 
round the world in the same boat with the inspired dis- 
coverer. It watched with Columbus the weeds drifting 
from an unknown land ; it " stared at the Pacific " by the 
side of stout Cortes ; it debarked with the gallant Cook, nor 
was it frightened at the savage violence which took his life. 
Like Caesar, it would not wait for the boat to come to land. 
It freighted vessels for countries not named ; it sent fleets 
to ports never visited by civilized man. 



CHAPTER XI. 

THE CO-OPERATION OF CAPITAL (concluded). 

2d, The union of capital and labor will be most effect- 
ive, when each is sure of its just reward. If the rights of 
man as a holder of property are sacred, and his rights as 
laborer equally so, the greatest motive to production can 
be secured. If otherwise, the creation of wealth will be 
restricted. Men will not work or save, unless sure of their 
reward. 

There cannot come, out of the earth or heaven, a blow that 
levels all industry in the dust so quickly and hopelessly as 
wrong done between labor and capital.* Pestilence, drouth, 

* It will be recollected that production carried on by slaves is done wholly 
by capital : the producer being a chattel, the whole product is that of capital. 



CHAP. XI.] THE CO-OPERATION OF CAPITAL. 67 

or floods do not so thoroughly and permanently prostrate 
the strength and hopes of a country as a breath of suspicion 
on the union of the two great agents of production. Then 
comes an antagonism, indeed, fatal to both. There is 
hardly any climate or soil so unpropitious that man will 
not struggle on, earning his livelihood with much endu- 
rance, and laying something by for the future. There is 
hardly any government so rigorous as wholly to suppress 
the energy of its people. There is hardly any taxation so 
exhaustive that something still cannot be got out of Nature 
for man. In all these difficulties,, the motive to exertion 
is not destroyed. But if foul play or legal fraud comes 
between labor or capital and their reward, the very life of 
industry ceases at the thought. The spring of work is 
broken. Its admirable parts and its cunning mechanism 
are useless, motionless. The exactions and oppressions of 
the old regime had not so broken the spirit of France, but 
that her population and her wealth went on increasing, 
slowly, painfully, but constantly, certainly. The Revolu- 
tion came ; the Convention questioned the rights of prop- 
erty, confiscated the estates of nobles, and sequestered the 
entire endowment of the Church. Half this would have 
been enough for ruin. The industry of France dropped 
where it stood. In a few months, the Convention was devis- 
ing schemes by which work should be provided by the State 
for all its citizens. Capital had fled to the dark places of 
the kingdom. Labor was helpless, crippled, starving. What 
had wrought all this ? The violation of rights. Property 
was discredited ; capital outlawed ; labor prostrate. 

Labor is the first to suffer. Its wants are instant, imme- 
diate, vital. Capital, in such economical convulsions, has 
the privilege of leviathan. It can dive down to the depths, 
and give up breathing for a while. If labor goes under, it 
dies. 

It is familiar to every reader of history how the brutal 
rapacity of the Spanish conquerors terrified the nations of 



68 PRODUCTION. [BOOK H. 

Peru and the Antilles, and shut up the treasures of the New 
World in a secrecy that even torture could not break. The 
wisdom of the man that owned the hen that laid the golden 
egg has been embodied a thousand times in the acts of gov- 
ernment. The result is never the enriching of one ; it is 
ever the ruin of all. Wealth itself becomes valueless, since 
it has no security in possession, and only excites the cupid- 
ity of the common tyrant. 

If such is admitted to be the effect of occasional invasions 
of property rights, either in labor or capital, we shall be 
prepared to explain the barrenness of many countries the 
oldest and best endowed of the world. 

The dreariness of Asia rises in eloquent vindication of 
the harmonies of natural law. A perfidious and cruel des- 
potism has there made property undesirable. Man finds 
safety only in poverty and degradation. The Jewish is per- 
haps the only people that has pursued wealth steadily and 
unremittingly, in spite of injustice and robbery. 

3d, The union of labor and capital is most effective when 
the latter is appropriately distributed. Capital creates no 
values by its own powers. It must be joined with labor. 
Somebody must use it, bring his personal energies to bear 
upon it, set it in motion, watch its operations, work with it. 
The farmer, the merchant, the manufacturer, must each 
bestow constant attention on the capital he employs, or 
no good will come of it. The more intense and vigilant 
the application, the more certain the return, the larger the 
profits. This is a well-known practical principle ; and from 
it follows that the point will be reached where an individual 
has so much capital under his control that his entire efforts, 
by himself and those working under his direction, are not 
sufficient to secure its greatest effectiveness. Of course, in 
such a case, it is economically right that the excess of capi- 
tal should be transferred to some other position, where its 
full productiveness can be obtained. 

Such limitations are highly beneficial to society ; for, were 



CHAP. XI.] THE CO-OPEEATION OP CAPITAL. 69 

there no restrictions of this kind, were capital in vast aggre- 
gations equally efficient as in smaller bodies, the business 
of the world might be controlled, and the profits appropri- 
ated, by a very few persons. 

The point is of great importance. Such a concentration 
of capital as effects the highest division of labor, and the 
fittest application of machinery, is desirable for the interest 
of all ; and for those purposes, and up to such a degree, cap- 
ital so concentrated has a wonderful power in production. 
But its aggregation, merely, is a hinderance rather than a 
help. After the two advantages spoken of above are once 
secured, capital becomes potent and beneficial just in pro- 
portion as it is distributed. By such distribution, it comes 
closer to labor and natural advantages. It makes use of 
various powers ; it defends itself better in emergencies ; it 
adapts itself more shrewdly to peculiarities of circumstance ; 
it has a keener intelligence of the public wants ; it com- 
mands a greater amount of executive talent ; it superin- 
tends its employes with more accuracy ; it saves the pieces, 
keeps machinery oiled, looks after tools. 

The man who is to gain by the work is brought nearer to 
it. He is well served, because he serves himself. 

For a long time, it was a favorite belief with the Ameri- 
can people, that corporations were the most efficient agents 
of production, even where the work was not so great as to 
be beyond individual enterprise. The older wisdom of the 
country turns more and more to the smaller establishments, 
which secure full, interested personal supervision of labor. 
The English economy has always preferred these, except 
where the operations were beyond the reach of ordinary 
capital. 

4th, The union of capital and labor is most effective 
where there is the greatest freedom of industry. 

Whenever a population is sufficiently intelligent to under- 
stand its own interests, it should be left to direct its own 
labors. Its industry should never be interfered with by 



70 PKODUCTION. [BOOK II. 

government. In all countries which may be considered 
as enlightened or civilized, like the European and Anglo- 
American, the people have no occasion to look to govern- 
ment for direction as to the business they shall engage in, 
or the manner in which they shall conduct it. Every 
branch of industry, in a normal state of society, grows spon- 
taneously out of the wants and capacities of the people. 
Tillage, manufacturers, commerce,' fisheries, spring up in 
the places to which they are best adapted. They can never 
be advantageously forced into being, or maintained by gov- 
ernmental authority and patronage. Every plant will thrive 
best in its own soil. Soils and climates vary : productions 
will differ in consequence. 

But our immediate topic relates, not to acts of govern- 
ment, based on a distinct purpose to change the general 
course of national industry, — which will be more appro- 
priately discussed elsewhere, — but rather to those which 
impose minor restrictions ; directing the modes of labor, 
moulding the forms of capital, and prescribing the condi- 
tions of their union. All limitations of the rights and 
powers of capital or labor, not required by the public mo- 
rality or security, are useless and mischievous. 

No lawmaker can gather and express the' desires of his 
people so accurately and seasonably as they are shown in the 
market demand ; or set in train and carry on their efforts, 
with myriad instrumentalities, to that end, so savingly and 
earnestly as is done by interested, educated capitalists ; or 
present satisfactions so fully and happily as is done by the 
merchant whose fortune is to answer for his appreciation of 
the public wants. 

The work of the politician in this behalf is gratuitous 
and impertinent. It is an indignity to industry which will 
be revenged upon the people. Capital and labor should be 
mobilized as far as possible ; free to collect or divide, to 
turn to the right or to the left ; free in gift, purchase, and 
heritage. On the contrary, the effort of legislation has gen- 



CHAP. XII.] ECONOMIC CULTURE. 71 

erally been to impose checks and limitations and hinder- 
ances everywhere. 

We have thus discussed at length the union of capital 
and labor ; passing close by the great practical questions of 
protection and entail, but reserving them, the one to Hie 
division of " Exchange," the other to that of " Distribu- 
tion." 



CHAPTER XII. 

ECONOMIC CULTURE.. 

"We shall best define the field of this agency by discussing 
one of the most severely contested questions of political 
economy, viz. : — 

What is the distinction between productive and unpro- 
ductive labor ? 

The form of this question is unfortunate, and has caused 
the greater part of the confusion prevailing on the subject. 
In itself, it is of slight importance ; but, in the course of the 
discussion, a very grave matter has become involved with it, 
helping the understanding of neither. 

Dr. Adam Smith insisted strongly on the distinction 
between productive and unproductive laborers. In the 
former class he embraced all those who produce material 
objects, which are generally admitted to be of use and bene- 
fit to mankind. Such, clearly, are farmers, mechanics, and 
merchants, in the general application of their industry. Of 
unproductive laborers, he says, "In this class must be 
ranked some of the greatest and most important, and some 
of the most frivolous professions, — churchmen, lawyers, phy- 
sicians, men of letters of all kinds, players, buffoons, musi- 
cians, opera-singers, opera-dancers, &c." This somewhat 
extended list by Dr. Smith has suffered curtailment by 
almost all writers since. The distinction between physical 



72 PRODUCTION. [BOOK II. 

and mental labor, between direct and indirect agency in 
production, could not long be permitted to remain as found- 
ing a distinction between productive and unproductive labor. 
It is clear that the physician who preserves the life and 
strength of the workman on the farm or in the shop is 
equally productive With him ; and that the lawyer by whom 
transfers of property are effected, and personal safety 
secured, is equally productive with the owner or the over- 
seer. 

One occupation after another, " important or frivolous," 
was withdrawn from the unproductive class, as prejudices 
disappeared in the light of a better philosophy, and as the 
part of each in the great economy 'became manifest ; so 
that now little is left of that sweeping condemnation of un- 
productiveness passed by the father of the science upon the 
learned and artistic professions. Yet there is a residuum, 
which it is our business to clear away. 

All labor, in the economic sense, is productive. The only 
office of labor is production. We do not, in either popular 
or scientific language, call by that name the efforts a man 
makes to do mischief, to dig away a dam or girdle trees, 
though he may devote his utmost energies to such destruc- 
tion. Nor do we call that labor which does not seek a 
reward, whether it be play, though of the hardest kind, or 
gratuitous service, however useful to the recipient- No 
more should we call by the name of labor that misdirected 
or mistaken effort which fails of its reward. 

Labor is defined as the efforts of man directed to the sat- 
isfaction of his desires. Every effort that is not so directed 
is a shot thrown away. It is wasted power, not labor. If I 
spend a twelvemonth in the invention of a machine, which, 
when completed, is of no sort of use to any one, and for 
which I can get nothing, my exertions have been unproduc- 
tive. I have worked enough for a reward ; but, as it proved, 
my work was not directed to the satisfaction of human 
desires. So of expenditures to improve land, which in no 



CHAP. XII.] ECONOMIC CULTURE. 73 

way enhance its fertility. There is a great deal of this kind 
of effort : perhaps much is inevitable. It is waste, not labor. 

But it may be urged, Suppose a man works for months 
preparing ground, planting, and cultivating till his crop is 
nearly ready ; but a flood comes, and carries all off from 
before his eyes, and leaves him nothing to show for what he 
has done. Was there not labor bestowed ? Certainly ; and 
the labor was productive, and it had its reward, not the less 
that each individual effort did not carry off its result in a 
complete form at the time, but waited for the harvest. 
Value was produced at every stroke of the shovel — palp- 
able, appreciable, marketable value — just as truly as if it had 
been taken home at the close of each day. Labor had been 
there, and received its recompense ; but the flood made a 
robbery of it all. Not the less was there labor, not the less 
was there production, not the less was there value. 

In this view, we see that all labor is productive. 

But it may be asked, Does it make no difference to the 
community what objects of labor are selected, and by what 
means these objects are attained ? Certainly ; and, in this 
inquiry, we reach the field of economic culture, which is 
that education of the desires, that instruction of efforts, 
and that use of satisfactions, which will unite to bring out 
desires, efforts, and satisfactions in ever-increasing circles 
of industry. Here arise, properly, all the important ques- 
tions which were formerly discussed under the head of pro-" 
ductive or unproductive labor. 

Now it can be asked with effect, whether the opera-dancer, 
the physician, and the churchman are useful ; whether they 
expand the desires, instruct the efforts, and dispose the sat- 
isfactions of men to a constantly enlarging industry. 

Let us inquire closely. It will be readily granted, that 
these and other similar classes may have influence upon, 
or power in, production in two forms, either primary or 
secondary. 



74 PKODUCTION. [BOOK II. 

Primary, where a direct part is taken, an active agency 
maintained, in the creation of values. 

Secondary, when an effect is produced, which, by modify- 
ing human capacities or desires, however indirectly and in 
whatever degree, brings about ultimately a greater creation 
of values. 

For example : that great class which, in various offices, 
maintains civil justice and order, has indisputably a primary 
influence or power by rendering possible the present crea- 
tion of values, and by watching over their keeping and 
transfer. Government and the law are great agencies of 
production. Without them, however desirous people might 
be of wealth, and however capable of effort, little or noth- 
ing could be produced. Robbery and violence would scatter 
and destroy what already exists, and a universal waste 
would speedily follow. But they have, also, a secondary 
power or influence ; for it is found that the maintenance of 
peace and property rights awakens new and increasing 
desires, widens the horizon of ambition, and stimulates 
everywhere to honest industry. Civil security is an educa- 
tion for wealth, an economic culture. 

Then that great class which teaches has both a primary 
and a secondary power and influence, — primary, in that it 
gives instruction to present labor, as it is struggling to-day 
with the difficulties of production ; explains chemical and 
mechanical laws ; and establishes the alphabet, the written 
letter, electric communication, the rules of book-keeping, 
and the art of navigation : secondary, in that the progress 
of mind brings it infallibly to higher stations of aspiration 
and activity. 

The work of the physician is almost entirely of the pri- 
mary character. He saves the lives of producers, and 
preserves their strength to labor. This secondary power or 
influence of his profession, if such exists, is distant and 
trivial. 

On the other hand, we shall add nothing to the dignity of 



CHAP. XII.] ECONOMIC CULTUEE. 75 

the churchman or priest or minister, by attributing to him 
any direct power in production. Yet his part may be no 
less important because secondary. The influence of religion 
is hardly less marked than that of race, in the creation of 
values. If its influence tend to improve the morals, and 
thus aid in the preservation of public order ; to elevate the 
mind, and thus give it nobler and higher aspirations, and a 
better appreciation of the right uses of wealth, — it must be 
a great auxiliary to its production. 

That class of agencies which we have designated as pri- 
mary comes within the view of production. The class of 
secondary agencies belongs to the department of consump- 
tion, which treats of the use of wealth, so that it may bring 
forth more wealth. 

Here, in economic culture, is the point at which pro- 
duction, passing by exchange and distribution, comes into 
relation with consumption. In pure theory, production 
and consumption complete the economic good, which is 
reproduction. The harvest which is gained in production 
is sown or wasted, as the case may be, in consumption, to 
re-appear in a more abounding harvest, or in barrenness, 
in reproduction. Practically, however, we have to intro- 
duce the laws of exchange and distribution, as the agencies 
by which production is finished, and consumption made 
possible. 

We have used metaphors drawn from the chemistry of 
agriculture to express the significance of economic culture. 
To illustrate from mechanics, we should say that it treats 
of the re-action of labor. No force can re-act except from 
something external. Labor is a force directed to an object. 
The energy with which it is to move in a new direction 
will depend on the temper and shape of the body on which 
it impinges. Reproduction, then, is the rebound of pro- 
duction from consumption. 

If labor expends itself on objects that do not stimulate to 
further efforts or serve as instruments to further produc- 



76 PEODUCTION. [BOOK II. 

tion, but rather debauch the energies and corrupt the 
faculties, it is evident that reproduction will be lessened 
and debased, and the whole course of industry be down- 
ward. 

If, on the contrary, labor expends itself on objects that 
present fresh and urgent desires, and excite to renewed 
activities, it is evident that the course of production is up- 
ward ; and the people will rise economically, with a rapidity 
and force, such as signalized the career, in the fourteenth 
century, of Florence ; in the seventeenth, of Holland ; in 
the eighteenth, of England ; in the nineteenth, of the United 
States. 



BOOK III. 
EXCHANGE. 



PART FIRST.— TRADE. 
CHAPTER I. 

THE PRINCIPLES OP TRADE. 

Exchange has its origin from the division of labor; arid 
the further that division is carried, the greater extension is 
given to exchange. If each man supplied his own wants 
by his own work, trade could not exist. But, so far from 
this being the rule of industrial society, the article to which 
a man devotes all his labor may be such as he never used, 
perhaps never saw used. 

Exchange is that agency which brings a man what he 
wants for what he does not want, which furnishes gratifica- 
tion for his desires out of objects which are adapted to 
gratify few or none of his desires. 

As the division of labor begins in the most savage state, 
so exchange is known there. One goes into the woods for 
venison ; another, to the river for fish. At night, they 
divide. Half the fish is given for half the meat. Perhaps 
other parties are introduced. Instead of exchanging the 
whole of their fish or venison, each of the two gives a por- 
tion for a trinket, and another portion to the medicine man 
for herbs which he alone knows how to collect. We have 
here brought in exchange, not only in regard to the plain 
necessaries of life, but to the services of science and to lux- 
uries. Yet all this occurs in the daily life of the savage. 

[771 



78 EXCHANGE. [BOOK III. 

Only one went for venison : four have venison now. Only 
one went fishing : four have fish to eat. The hunter and the 
fisherman have trinkets and medicine they know not how to 
get. The doctor and the cripple who made the trinket have 
fish and venison they could not procure for themselves. 

This is the idea of exchange. It extends first to the 
industry of a hamlet ; it enlarges to take in the entire com- 
munity ; it remains through all the successive modifications 
and refinements of labor and accumulations of capital. It 
goes abroad ; it crosses rivers, then narrow seas, then the 
broad ocean ; hunting out everywhere what the seller wants, 
carrying everywhere what the buyer wants. The word 
"exchange" expresses the economical principle of all this: 
its office is the creation and apportionment of wealth. 

" Trade " is a technical term for the sum of all actual 
exchanges. It is exchange realized. 

There are several kinds of trade : — 

1st, Domestic or home trade, which includes what is 
commonly known as the coasting trade. 

2d, Carrying trade, in which the carriers have no inter- 
est in the commodities beyond their transportation. 

3d, Foreign or international trade, to which the word 
" commerce " is generally applied. 

These kinds of trade are subdivided into the wholesale, 
retail, and jobbing trades ; and specialized indefinitely as 
the iron, cotton, shoe trades, &c. 

Whence does trade arise ? 

From the desire which individuals and communities have 
for each other's products. It is evident that this is essen- 
tial to trade ; since, if men or peoples produced by them- 
selves all they wished for, there could, as we have said, be 
no occasion for an exchange. It is evident, also, that this 
is sufficient for trade, since it supplies all the motive that 
can exist for an exchange. 

To what extent can trade be carried ? 

To the extent of the surplus production of each individ- 



CHAP. I ] THE PEINCIPLES OP TRADE. 79 

ual or nation. Given the aggregate surplus products of all 
the people of a country severally, and we have the amount 
of its entire trade. Given the aggregate surplus products of 
the people collectively, and we have the amount of its foreign 
trade. 

Illustration : Suppose a community of one hundred indi- 
viduals, each producing three hundred dollars' worth a year, 
— aggregate revenue, thirty thousand dollars. If each per- 
son desires to consume only one hundred dollars' worth of 
his own articles, he will have left for trade two hundred 
dollars' worth, — aggregate in the community, twenty thou- 
sand dollars. But if, after exchanging around with his 
neighbors, it is found that each member of the community 
has one hundred dollars which he does not wish to part with 
for any thing he can get at home, we have the aggregate 
surplus available for foreign trade, ten thousand dollars. 

Ordinarily, individuals or peoples do not wish to part 
with all their products. Ohio, for example, does not wish 
to dispose of all her wheat. .A share must be kept for 
home consumption. The surplus will be exchanged for other 
commodities abroad. 

Exactly the amount to be so retained will depend, within 
certain limits, on the degree of disposability. The more the 
wheat is in demand, — that is, the more of desirable things 
are offered for it, — the less will the producers be inclined to 
retain it ; the greater effort will they make to dispense with 
its use themselves, or substitute other things for it at home. 
But this result will be limited by the necessities of the peo- 
ple. It cannot be calculated on to increase very largely the 
amount available for trade. 

It will, of course, be remarked, that the amount of sur- 
plus, in particular countries, will vary with the character of 
their products. We can suppose an entire people engaged 
in industry, of which they make no use themselves. In 
such a case, their trade would be to the amount of their 
whole production and their whole consumption. In fact, 



80 EXCHANGE. [BOOK III. 

this condition of things is never realized. The nearer it is 
approached, the more general the trade. The more vital 
and primitive the articles produced, the greater will he the 
share consumed at home. Ohio has no such trade, propor- 
tionately, as Rhode Island; not necessarily because the 
latter produces more, but that she produces more of what 
she does not want. The people of Birmingham consume 
but an infinitesimal part of the articles they produce. 

"We have here the principle that the wealth of a people is 
not determined by the extent of its trade. 

We have said that the trade of a community, whose whole 
production was exchanged, would be equal to its production 
and consumption. It would be so, but that would be deter- 
mined by its production only. It would be this alone which 
it would carry in its hands' into the markets of the world, 
and on this would depend what it should get there. 

What persons or communities will trade most largely 
with each other ? 

Other things equal, those whose productions differ most. 

Two tailors will not traffic much together. Both will 
trade with the shoemaker and hatter. Indiana will not trade 
extensively with Illinois ; but both will trade largely with 
Louisiana and Massachusetts. Russia and Sweden will 
make very few exchanges, because their productions are as 
much alike. Both will deal largely with the West Indies. 

What determines the character and kind of products each 
country will afford ? 

1st, Soil and physical conformation. One will be a wheat- 
raising, another a wool-growing country. Each will spon- 
taneously turn its industry in that directio'n where it will 
produce the greatest values with the least outlay of labor 
and capital. This must be where the natural adaptations 
of the land are followed. This operates, in respect to na- 
tions, precisely as we see it in smaller communities, where 
one farm is especially fitted for grazing, another for tillage, 
another for timber. 



CHAP. I.] THE PRINCIPLES OF TRADE. 81 

2d, Climate. From the Arctic regions to the tropics, 
from Siberia to Hindostan, is infinite variety, both of heat 
and moisture. Some countries are deluged with twenty-five 
feet of water in a season ; * others parch the year round 
with ten inches. Some are locked with frost eight months 
in twelve ; others are open the year round. It is evident 
that the conditions which are admitted to have given rise to 
the differing species of fruits and grains and vegetables will 
control their increase. 

3d, Social condition. Take, for examples, England and 
Brazil, — one distinguished for the high moral and mental 
endowments of its citizens ; the other having a heteroge- 
neous population, in a poor and semi-barbarous condition. 
The latter would, plainly, seek to enrich themselves from 
the spontaneous yield of the soil, from the wild wealth of the 
pampas and the forests, from the precious ores and stones 
along their streams and in natural caves, rather than till 
the ground to the fertility of a garden, sink shafts into the 
solid rock, cast up highways upon the rivers, and work iron 
into the needle and lancet. 

4th, Difference of race. 

This is additional to differences of social condition, and 
looks to those peculiarities of industrial character in the 
races of man, which are no less distinguishable than their 
peculiarities of stature, complexion, and feature. These do 
not affect the degree of production only, as greater or less, 
but multiply the fashions, and complete the varieties of 
wealth. 

All the causes here enumerated conspire to give a great 
extent and activity to trade. It is in the commerce of the 
world that we have illustrated — 

THE TERRITORIAL DIVISION OF LABOR. 

The Chinese raise tea and silk. This is their specialty, 

* The mountains south of Bombay receive three hundred and twenty 
inches of water a year, mostly in three months. 

6 



82 EXCHANGE. [BOOK III. 

the form of industry to them most profitable. The Cubans 
produce sugar; and the Sicilians, oranges, for the same rea- 
son. England excels all nations in useful manufactures ; 
France, in those of taste and beauty ; while the United 
States has its great industrial power in cotton and wheat. 

Under the operation of natural laws, each country employs 
and disposes of its labor, without any arbitrary enactments, in 
just the way most congenial and profitable ; in other words, 
in that way which develops its greatest industrial power, 
and secures the largest possible production. 

Suppose, on the contrary, that we of the United States 
should determine to raise our own oranges. We could do 
so, and create a supply equal to the demand. The cost of 
one orange would probably be equal to the cost of raising a 
bushel of wheat, which would procure for us abroad one 
hundred oranges. The loss would be equal to ninety-nine 
out of every hundred oranges. We should force a cer- 
tain part of the labor engaged in other pursuits into the 
business of raising oranges. The supply would be fully 
equal to the demand ; for, at the rate of a bushel of wheat 
for each orange, few oranges would be wanted. The people 
would lose the enjoyment of ninety-nine out of every hun- 
dred oranges they would otherwise consume, and could just 
as well have, if allowed to pay for them in wheat. 

If we turn to the advantages alleged * of the division of 
labor individually, we shall find that each one of them holds 
good in the application of the principle territorially. Indeed, 
it may be assumed that it is here more active and efficient, 
since the differences of communities range higher than 
those of individuals. On the other hand, the limitations 
prescribed are indefinitely removed when we come to the 
field of national industry ; and the disadvantages disappear 
altogether. That would be a bold philosophy that should 
declare a people one-sided which does not produce every 
tiling it consumes. So far from being considered a defect, 

* See Production, ch. iv. et seq. 



CHAP. I.] THE PRINCIPLES OP TRADE. 83 

that races or nationalities should develop very strongly in 
special directions, it is highly desirable. While it takes 
nothing from the individual excellence, each contributes 
with a greater generosity to the completeness of the whole. 

From these general considerations of trade, we deduce 
the following principles : — 

1st, That individuals must produce a surplus of their own 
commodities to have an opportunity to trade, and must 
trade to make it an object to produce a surplus. "Wants 
create wealth, and wealth Creates wants. 

2d, That every nation is interested in the production of 
every other nation. Any thing which impedes the produc- 
tion of any individual or community injures the trade of 
the world. Such causes, for example, are pestilence, as the 
cholera, yellow-fever, and plague ; the convulsions of na- 
ture, as earthquakes and inundations ; war, as in the case 
of the late war in India, which sensibly affected the trade of 
the world, and, still more striking and recent, in the case 
of the great Rebellion in the United States, which was felt, 
it may almost be said, by every human being on the globe. 
Not a consumer of cotton, high or low, civilized or savage, 
but suffered in consequence. 

3d, That this mutual interest exists between any two 
nations, whether they have direct commercial intercourse 
or not. For example : there may be a German principality 
that purchases nothing of the United States, yet it may pur- 
chase largely of the cotton yarn of England. That causes 
a demand for American cotton ; that benefits the Southern 
States ; that, in turn, helps the trade of the North ; and 
that, again, the producers of the West, on whom the North 
depends for agricultural supplies. 

By such ramifications, exchange extends itself through 
the world. 

4th, Since, by the laws of trade, those countries which lie 
most remote from each other, and are most unlike in soiL 
climate, civilization, and ethnical characteristics, are mos^ 



84 EXCHANGE. [BOOK HI. 

neaily united by commerce, it is shown, that, by this terri- 
torial division of labor, the most extended production and 
the most beneficent distribution of all the commodities 
of the earth are secured ; and that, if any nation creates an 
article of peculiar desirableness, it is placed within the 
reach of all. Every invention or improvement becomes, in 
this way, the common property of mankind. 

5th, That commerce harmonizes all differences in the 
industry of the world. 

" All Nature's difference makes all Nature's peace." 

Any natural impediment or artificial obstruction to the 
intercourse of nations, in fact, so far injures the production 
and trade of all. 

" A commercial nation," says Sir James Mackintosh, 
" has the same interest in the wealth of her neighbors that 
a tradesman has in the wealth of his customers. . . . Not an 
acre of land has been brought into cultivation in the wilds 
of Siberia, or on the shores of the Mississippi, which has 
not widened the market for English industry." 

6th, That commerce diminishes the number of wars, and 
shortens their duration. 

There may have been a time when the galleons of Spain 
and the Indiaman of England bringing home the stored 
treasures of barbarism influenced the cupidity of govern- 
ments to the point of war. But as commerce abandoned 
the spoils of conquest for the honest industry of the world, 
as its field became widened, its connections more intimate, 
its benefits more popular, the temptation to plunder and 
violence died away. The advantages of a peaceful partici- 
pation in trade are greater to every people, even those least 
maritime, than all that could be hoped from the ravages of 
a Drake or a Doria. The whole interest of commerce is 
now the inalienable ally of peace. It has not been found 
sufficient, thus far, to prevent all wars. But it enters into 
negotiations, tempers grievances, and delays violence. And 



CHAP. II.] OBSTRUCTIONS TO TRADE. 85 

when, iii spite of its admonitions, war is declared and waged, 
it remains still an argument for peace more impressive and 
influential by reason of the distresses and inconveniences 
attending: the loss of accustomed traffic. 



CHAPTER II. 

OBSTRUCTIONS TO TRADE. 

These are of three kinds : — 

First, physical, which are natural ; second, social, which 
are incidental ; third, legal, which are conventional. 

Looking at these in the light of what has gone before, we 
shall be inclined to regard them as so much imposed as 
a burden on industry, shackling the movements of capital 
and labor. 

But they have been presented in another aspect, as if 
there were compensations for this hinderance of spontane- 
ous trade ; and to this, also, we will attend. 

Inasmuch, therefore, as these obstructions to trade have 
been regarded as the protection of local industry, and on that 
account have been received with favor by scientific men and 
rulers, we shall speak of them as different forms of protec- 
tion. The propriety of the term " protection " we shall 
discuss at another point. 

1st, Physical protection. 

This results from obstacles which Nature interposes. 
They may all be expressed by the single term " location." 
The wheat of Vermont has a protection in its own markets 
as against the wheat of Illinois, to the extent of all the cost 
of transportation from the latter to the former State. If 
the cost of transportation and attendant charges are fifty 
cents per bushel, then the farmers of Vermont can, as far 
as competition from Illinois is concerned, continue to sell 



86 EXCHANGE. [BOOK III. 

their wheat until they reach a price fifty cents per bushel 
greater than they could obtain but for this. All this may 
not much enrich the farmer ; for the greater price may be 
rendered necessary by the additional labor required. But, 
at any rate, it assists him in selling just so much. On the 
other hand, the mechanic of "Vermont must pay more, up 
to fifty cents, for a bushel of wheat. The protection of the 
farmer, though a natural one, is at the expense of the con- 
sumer. The mechanic, in so far as his bread is concerned, is 
placed at a disadvantage in production, in competition with 
those who can purchase their wheat at the prices of Illinois. 
It costs him more to live : he must, therefore, charge more 
for his wares, and, of course, sell less. 

If, now, the introduction of railroads reduces the cost of 
transportation to twenty-five cents, the Vermont farmers 
have lost half their protection. The consequence of this 
will naturally be, that some of that class in Vermont will 
become mechanics, because the latter class has gained what 
the former has lost, by the reduction in the cost of transpor- 
tation. Any thing which reduces the price of agricultural 
products has a tendency to increase all other branches of 
production. 

This protection amounts generally to an entire prohibition 
of the foreign article in the case of certain manufactures, 
such as houses, barns, stores, &c, which might often be 
erected more conveniently and cheaply than in the country 
where they are to be occupied ; but the cost of transporta- 
tion puts it out of the question, except in cases where the 
local facilities are very crude and insufficient. There have 
been great numbers of houses sent out by ship to California 
and Australia ; and there are, even now, remaining in the 
eastern portion of the United States, houses which were 
framed in the old world, or which are made of brick import- 
ed from England. 

Yet, looking to the whole of things, we find that this class 
of protection builds up, in every country, an amount of 



CHAP. II.] OBSTRUCTIONS TO TEADE. 87 

manufacturing and mining industry, often amounting to 
one-half of its consumption in that line. 

Such a protection to industry being in the nature of 
things, and, in fact, being the very condition of material 
existence, we have no more call to inquire whether it is 
desirable than we have to ask the same concerning weight. 
It exists, and must continue. The effect of it may be less- 
ened by man's contrivances, but can never be annihilated. 
Those very contrivances will be among the effects of it. 

In a certain sense, and to a degree, such obstructions, 
even when apparently removed, still continue to exert a pro- 
tection on local industry. Suppose, for example, a swamp, 
near a certain town, requires a detour of many miles for 
all passengers and freight. It is a natural protection on 
the industry of the place. If, now, a causeway is con- 
structed or the swamp drained, so that the difficulty of 
travel is avoided, the protection is removed, unless, indeed, 
it exists in the form of the debt incurred for drainage. In 
either case, the people are relieved of a certain amount of 
labor once indispensable ; and, though their " protection " 
has been removed, their industry has been greatly bene- 
fited. 

In the prodigious enterprises undertaken by science and 
labor for removing, in every direction, obstacles to uninter- 
rupted communication, do we not find the best practical 
commentary on all artificial and conventional arrangements 
for putting countries further apart by imposing restrictions 
on commerce ? If the approach of foreign industry is unde- 
sirable, it is an economic curse, that the steamship and the 
Indiaman have replaced the galleys of Columbus or the 
triremes of Themistocles. Let the ocean be turned to 
quicksand, and the earth to mire ; that so the mutual hurt- 
fulness of nations may cease in an entire impossibility of 
reaching each other. 

The second of the modes of protection is what we have 
termed social. We have also called it incidental, there 



88 exchange. [book in. 

being no original intention to affect the direction of labor. 
It arises from social obstructions or political disturbances. 
These increase the protection afforded the interests of par- 
ticular localities. A most impressive illustration is found 
in the results of the war of the Rebellion in the United 
States. The production and sale of cotton was greatly hin- 
dered, and, for a time, almost annihilated. This operated as 
an immense protection to the cotton of India and Egypt, 
where, before, the culture was comparatively unprofitable. 
Yet, under the encouragement of the American war, it be- 
came more advantageous than any other branch of industry. 
Indeed, so largely was it raised in India, that the country 
increased in wealth at a rate quite astonishing, and a great 
industrial revolution, for the time at least, was effected. 
But it was at a heavy expense to all other peoples and 
countries . What India gained, Europe and America lost ; 
the former as producer, the latter as consumer. The wealth 
of the world was not increased, but greatly diminished, and 
its natural and healthy commerce widely deranged. 

Even India itself has not been permanently benefited by 
the extraordinary demand for her cotton. The return of 
peace in the United States, bringing down the price of her 
great staple, has caused extensive bankruptcy and great 
commercial distress. The season of artificial prosperity 
led to the wildest extravagance and speculation, to the 
neglect of the culture of rice and other needful crops, so 
that the event, which, for a while, brought unwonted pros- 
perity, must, in the end, produce equal depression and 
suffering. 

In some countries, the despotic rapacity of the govern- 
ment, and the violence and fraud that pervade society, serve 
as a great protection to the industry of others, by diminish 
ing personal safety and business security in trade. Such 
an element affords the same encouragement to others as 
the introduction of a bear into one store would give 
to the sales of others. It plainly reduces the quantity 



CHAP. II. J OBSTRUCTIONS TO TRADE. 89 

or quality of inducements that can be held out to buyers 
in the community where the disturbance or disorder ex- 
ists. 

Suppose the Gulf of Mexico to be infested with pirates, so 
that the danger to life and risk of property should double 
the price of sugar brought from New Orleans to New York. 
This increase of price, caused by the cost of insurance 
against robbery and murder, so long as it lasted, would be 
a protection to that extent to the cultivation of maple sugar 
in the North. 

War, under all circumstances, whatever the occasion or 
result, whether between different nations or parts of the 
same, always has the effect of disturbing trade, arresting 
all the healthful agencies of production, and disturbing the 
harmony of the economic world. 

3d, The last of the modes of protection is what we have 
called legal. It is purely conventional, and arises with the 
direct purpose of affecting production, or, at least, with 
the expectation that such will be the result. This is effected, 
firstly, by the prohibition of imports from one or all nations ; 
secondly, by a direct premium on the products of home 
industry ; or, thirdly, by the imposition of duties on the for- 
eign article. 

The former method is so violent and extreme as to be 
entirely out of the sympathies of modern economy and 
statesmanship. In so far as it exists, it intends to destroy 
trade. It may arise during a state of war, or in greatly 
embittered controversies for purposes of injury or revenge ; 
in which case its effects are to be regarded rather as be- 
longing to a state of war, and as incidental to it, though 
brought in by specific enactment. 

The second, though used at different times and in differ- 
ent countries, has never been a favorite with governments, 
although it is by far the most economical mode of giving 
encouragement to a particular branch of industry. An 
illustration of the great advantage of this mode of protec- 



90 EXCHANGE. [BOOK III. 

tion over that of laying duty on exports will be given in our 
chapter cm national taxation. 

We .shall have to do, then, only with that kind of legal 
protection which is secured by the imposition of duties on 
imports. This has been the practice of nations generally, 
in a greater or less degree, and so with more or less effect. 
England formerly Laid taxes on four hundred articles brought 
into her ports from Fiance. The United States has always 
maintained a system of import duties of a varying character, 
sometimes directed to one object and sometimes to another, 
as the popular feeling went. 



CHAPTER III. 

PEOTECTION. 

Legal protection may be imposed from one or more of 
four general reasons : — 

1st, To raise a revenue. 

2d, To encourage the production of certain commodities 
at home. 

3d, To support existing forms of production. 

4 th, To seen re commercial independence. 

All these will be examined in detail. 

1st, To raise a revenue. So far as this is the only con- 
venient way in which the state can raise a certain sum of 
money which it must have, it is but a mode of taxation, with 
which we have no present concern. So far as it also affects 
industry, it becomes a species of protection. We have not 
called it incidental, because its bearing on industry is known 
and considered in its imposition. So far as the element of 
protection remains, it should be subject to the judgment 
which shall be pronounced on what follows. If the " pro- 
tection" of certain domestic products be found a good, then 
the revenue duties should be so disposed as to afford them 



CHAP. III.] PROTECTION. 91 

all possible assistance at the same time that it serves the 
public purse. If, on the other hand, it is decided to be mis- 
chievous to substitute man's law for Nature's, such .revenue 
duties should, as far as may consist with the public safety, 
be imposed on articles where it will not mislead industry. 

2d, To encourage the growth or manufacture of certain 
commodities at home. This is the field in which protection 
joins battle of choice with freedom of industry. In all the 
other particular reasons, its argument is, as we shall see, 
linked with some real or fancied necessity ; but here protec- 
tion takes ground freely and fairly, virtually making two 
propositions which it assumes to defend : — 

First, that the desires of man, as an industrial being, are 
so blind, so passionate, or so weak, as to require correction 
by the public will, enlightening, chastening, or stimulating. 

Second, that the efforts of man, as an industrial being, 
are not sufficient, of themselves, to achieve the satisfaction 
of desires, without the aid of law, coercing him to that 
which he would not voluntarily undertake. 

What is industrially wanting, then, in man's nature, either 
individually or in voluntary association, is to be supplied by 
such enactments as are called protective. 

We will inquire about the second of these propositions, 
with the view of reducing both to one. 

Man's industrial efforts can never be assisted in produo 
tion by any legal enactment. Deriving all value from labor, 
we have here an adamantine basis, which no sophistry can 
move. Laws may be supposed to stimulate desires, or to re- 
press them ; but they cannot lay hand on man's labor, except 
to hinder it. It is a power given by the Creator, to work 
upon the constant properties of matter. It has no fellow 
in its work ; its only tools are capital, its own creature, and 
nature, whose forces are fixed by God. Labor has its 
commission and its reward in itself. Just as surely as 
man cannot add one cubit to his stature, so is law impotent 
to help man's labor, except through man's desires. 



92 EXCHANGE. [BOOK III. 

There is another reason, more abstract, for reducing these 
two propositions to one. It is, that the efforts men will 
make are included in their desires. Those efforts are those 
desires going out after their objects. Man's work is man's 
want active. 

"We have thus to consider only the first proposition in the 
theory of protection ; namely, that the desires of man, in 
the economic sense, need government by law. Men, as con- 
sumers, are to be shut off from certain objects to which they 
naturally incline ; and, as capitalists or laborers, are to be 
shut up to certain efforts, which, so far as the legislation 
has any influence, are not the direct, simple, and proper 
means to the satisfaction of existing wants. And all this 
not at all in the interests of morality or good government, 
but wholly with a view to the greater wealth and industrial 
prosperity of the community. This proposition has its only 
basis in a want of confidence in the intelligence of the peo- 
ple to direct their own desires, and of the competency of 
labor to gratify such desires. The proposition here reaches 
a point where there is no argument. Consciousness and 
experience must affirm or deny sharply and decisively. Such 
wisdom or power, we believe, has not been vouchsafed to 
legislators, whether absolute or representing the will of a 
people. 

Economically, it will ever remain true, that the govern 
ment is best which governs least. The wants of a people 
are the sole proper, the sole possible, motives for production. 
Nothing can be substituted for them. Any thing that seems 
to take their place is merely a debasement of them. The 
interests of producers, whether laborers or capitalists, secure, 
better than any other possible means, the gratification of 
such wants. Their intelligence is always superior on such 
points to that of any foreign body. These we believe to be 
absolute affirmations of universal experience, not dependent 
on reasoning, not condescending to argument. 

General proposition : There is no sense so subtile as that 



CHAP. III.] PKOTECTION. 93 

with which a man detects his own wants. There is no spur 
so sharp as that which urges him to satisfy them. 

This is all the defence it seems necessary to make against 
the direct attack of the protection theory. It will be more 
troublesome when we meet it in alliance with other in- 
terests, on ground not its own, and displaying uncertain 
colors. 

If, then, protection is founded on false economical prin- 
ciples, we should expect to find it working mischief in its 
application to national industry, perverting the desires, crip- 
pling the efforts, and plundering the satisfactions of society. 

Since the subject is of great practical importance and of 
great popular interest, we will take an illustration at length 
from the history of American industry, exhibiting the prin- 
ciples thus far attained. 

We choose the manufacture of iron, for six reasons : — 

1st, Because it may be produced in great amount in our 
own country, and is found in almost all others. There is, 
therefore, nothing of the nature of a monopoly about it. 

2d, Because it enjoys the largest natural protection arising 
from its weight and bulk. 

3d, Because it is one of the most simple of all manu- 
factures. 

4th, Because it has been tried on a large scale, affording 
material for great inductions, and freeing the results from 
any imputation of accident. 

5th, Because the public attention has been turned to it for 
a long time, and it is better understood than any other we 
could name. 

6th, Because a stronger argument can be made in favor 
of its receiving governmental protection than any other. 

What is the fact in regard to the manufacture so de- 
scribed ? At present, iron cannot be so cheaply and exten- 
sively produced in the United States as to exclude the 
foreign article. Why is this? We answer negatively : — 

1st, Not that we do not know how to make it. Being, as 



94 EXCHANGE. [BOOK III. 

has been said, the most simple of all manufactures, we have 
had, from the earliest settlement of the colonies, the neces- 
sary knowledge, and have produced it from our colonial 
days. 

2d, Not that we have not sufficient capital. No branch of 
business is more accessible than iron-making, or requires 
less capital proportionally. As a matter of fact, the busi- 
ness was commenced with little difficulty, and we succeeded 
up to a certain point. Had it been as profitable as other 
branches of industry, it would, like the manufacture of 
hoots and shoes, have been extended to the full demands 
of the country. Yet the latter industry has been carried 
nearly to the full demand. The former has stopped far 
short of it. 

It is to be observed, in this connection, that a successful 
business, once started, creates its own capital. Labor no 
more seeks assistance from capital, than capital employment 
by labor. Every year of profitable enterprise affords a sur- 
plus, which can be applied to the increase of business more 
efficiently than twice the amount of raw capital, coming in 
the lump. The daily or monthly increments arc applied 
with an aptness and a promptness that make them far more 
useful than wholesale, occasional accessions of capital from 
abroad. 

3d, Not that we have not the best natural facilities for the 
manufacture. 

Five great conditions of success are found most remarkably 
in the United States, — (a) Our ore is not only of excellent 
quality and most abundant, but (7>) is found very generally 
on the surface and (c) in proximity to the best river naviga- 
tion, and almost always in close juxtaposition to (<7) coal 
for smelting, and (c) limestone for flux. Perhaps in no 
other country of the world are these requisites so fully se- 
cured. The absence of a single one of them might be suffi- 
cient to destroy the prospect of production. 

The importance of this element will be seen in the follow- 



CHAP. III.] PROTECTION. 95 

ing remarks from Dr. Allen's excellent work on "India, 
Ancient and Modern : " — 

" India has valuable iron mines (the writer once heard a distin- 
guished geologist, who had been inspecting them, say they contained 
iron enough to supply the world) ; and yet nearly all the iron used 
in the country is procured from Europe, because the iron mines 
are in one province, and the coal is in another." 

4th, Not that the manufacture here lacks a good natural 
protection. America has been put at a great distance from 
Europe. The effects of such a protection we have already 
seen. The foreign product is, in this case, charged with 
freight and insurance for a voyage of three thousand miles. 
This, with articles having little bulk or weight for the value, 
might not serve as a great encouragement to the home pro- 
duct ; but, with iron, it is a very considerable item. 

Why, then, with all these facilities, do we not produce all 
our iron without governmental protection ? There is but 
one reason. 

We can do better. We can obtain our iron with less 
labor than by making it. 

How can this be ? Because, though we have facilities for 
making iron, greater perhaps than any other people, we have 
still greater facilities for raising agricultural products. 

We can raise forty bushels of wheat with, say, twenty days' 
labor that will purchase a ton of iron, to produce which 
would cost twenty-five days' labor : net saving, five days, or 
twenty per cent on all our iron. 

What is the explanation of this state of things ? 

Land is an instrument, and the greatest of all, in pro- 
ducing agricultural values. Good arable land, on which 
wheat is raised in England, is worth, say, two hundred dol- 
lars an acre. 

In this country, the same is worth, say, twenty dollars.* 

* Often not a fourth part of that sum. The government holds the best 
wheat land at one dollar and twenty-five cents, and gives it away to actual 
settlers. 



96 EXCHANGE. [BOOK III. 

Then, with our price of land, we have the advantage, so far, 
over the European, in the production of crops, of nine-tenths, 
or ninety per cent. Our capital in land is ten times as pro- 
ductive as that of England. On the other hand, we have 
not an equal advantage over the European in making iron ; 
for, although it costs him more labor (and labor is, as we 
have said, the chief item in making iron), that labor costs 
him much less per day than it costs us ; say, at least, fifty 
per cent less. So that, if it is estimated to cost him twice 
as much labor to make iron, still labor costs him no more in 
money than ours costs us. In respect of labor, then, we are 
oii a level. 

So far as money, as capital is concerned, the European 
again has the advantage of us by fifty per cent, since 
money is as well worth eigM per cent here as four per 
cent there. 

Now, these facilities which the European has, from the 
cheapness of labor and capital, counterbalance to a great 
extent, if not fully, the advantages which we have from the 
ease with which we can get the materials of which iron is 
made. 

If so, in getting our iron by raising wheat, we have the net 
advantage over the European of ninety per cent in the land, 
which is the great item of expense in such products ; so 
much so, indeed, that the pure rent of farms in England 
is estimated to equal the entire wages of the agricultural 
laborers. 

Thus it is that our unequalled natural advantages, aris- 
ing from cheap virgin lands, render it unprofitable for us 
to make iron, or engage in many other kinds of manufac- 
tures. 

Such is the situation. We will now apply protection. 
Government, in 1816, laid a duty of thirty dollars per ton 
on bar iron ; equal to about fifty per cent on the cost of 
the foreign article. Let us inquire into the effect of this 
policy. 



CHAP. III.] PROTECTION. 97 

1st, Iron was produced. Labor and capital were at once 
withdrawn from other occupations, and invested in furnaces 
and iron-making. "We undertook to make iron ourselves, 
under the belief, that, with a protection of thirty dollars per 
ton, the manufacture would be found very profitable. So 
far, the object of the duty was accomplished. 

2d, A great loss was caused to the general production of 
the country. Labor and capital were withdrawn from pur- 
suits of ordinary profitableness, and invested in business 
that required fifty per cent protection to make it profitable 
at all. If the duty was necessary to establish the manufac- 
ture in 1816, as it was, — for a still higher protection was 
called for, — does it not follow, that, on the whole amount 
made under the forced system of production, there was a loss 
to the country of thirty-three and one-third per cent ; thirty- 
three and one-third per cent of ninety, the enhanced price, 
being fifty per cent on sixty, the original price ? * 

Is it possible that there can be any doubt of this ? The 
production of wealth was decreased so much. The enhanced 
price, thirty dollars per ton, took the following form : — 

* It should be understood that there can be no greater discount than one 
hundred per cent, which takes the whole of any thing; yet there are men who 
profess to be learned and even well versed in financial matters, who speak 
very flippantly of two hundred or five hundred per cent discount. Professor 
Fawcett, in his " Manual of Political Economy," page 365, says, " Mr. Glad- 
stone has been confident in his belief that a reduction of one hundred per cent, 
in the price of inferior French wines, will cause those wines to be purchased 
by classes of society in this country who have never before purchased them ; 
and, therefore, the consumption will increase more than one hundred per 
cent." Certainly, Mr. Gladstone is right in supposing the consumption would 
be increased more than one hundred per cent, if the price were reduced one 
hundred per cent ; but it seems almost incredible that the Chancellor of the 
Exchequer could have used the expression attributed to him. The fact that 
Professor Fawcett himself could write in this manner shows the importance 
of having the exact meaning of the term " discount" defined and determined. 
A writer in one of the most respectable magazines in New York lately stated 
that a certain commodity " had fallen six hundred per cent." Occurrences 
of this kind are frequent. The difficulty in the case seems to be, that discount 
and premium (or advance) are confounded. The first is limited to one hun- 
dred, the latter is illimitable. 

7 



98 EXCHANGE. [BOOK in. 

Suppose the consumption of the United States at that 
time, 1816, to have been eighty thousand tons per 
annum, and that, under the system of protection, we 
made twenty thousand tons, importing the balance ; 
there was, then, paid duty on sixty thousand tons, 
at thirty dollars $1,800,000 

Twenty thousand tons made, at a price enhanced by 

thirty dollars 600,000 

Total enhanced cost to the people* .... $2,400,000 

Now, as the iron-masters did not get more than the average 
rate of profits, the entire six hundred thousand dollars was 
lost to the country, both to people and government. The 
sum of one million and eight hundred thousand dollars went 
to the national revenue. The protection of iron cost two 
million and four hundred thousand dollars, the people pay- 
ing a tax not the less on the domestic than on the foreign 
product. 

But the real loss to the country was much greater, be- 
cause, — 

3d, Many wasteful and disastrous experiments were made. 
When any branch of industry grows up naturally, it com- 
mences upon a small scale, and is cautiously extended, as 
found profitable. Under a forced system, it is quite other- 
wise. A duty of thirty dollars a ton is laid upon iron. 

Pennsylvania is full of iron ore and coal. What prevents 
her from making a vast sum by it ? Has she not a protec- 
tion of fifty per cent ? So everybody reasons ; so everybody 
acts. Great establishments are started at once. There is 
no occasion longer to consult adaptations of character, expe- 
rience in business, or local economy. Success and fortune 
are secured to all by omnipotent protection. Men plunge 
headlong into the work, if, indeed, they suppose it to be any 
thing so serious as work. Merchants, professional men, 
farmers, mechanics, all are seized with the mania of iron- 
making. Large iron works are hastily and ignorantly got up. 

* Besides all the profits charged on the duties and enhanced cost of the iron. 



CHAP. III.] PEOTECTION. 99 

Incompetent heads manage them. 

Inexperienced hands work in them. 

Imperfect iron comes out of them. 

Inevitable loss attends them. 

Insolvency is the end of them. 

And the iron interest clamors loudly and successfully for 
more protection. Fifty per cent is not enough for the people 
to pay extra on iron. These are not accidental or peculiar 
results, but natural and certain, where the great laws of 
trade and the even course of production are disturbed. 

We have seen these marked effects of protection in the 
protected country. How of the excluded country? 

Just so far as the " protection " is adequate, England 
cannot send us iron. What then ? So much of her iron 
trade is cut off; and her capital and industry must be directed 
to raising wheat, or to some other less profitable, productive, 
and natural employment. A part of it is forced into wheat- 
growing, and this reduces the quantity she would naturally 
require of American wheat. Her industry is made less ad- 
vantageous ; our market is correspondingly diminished. So 
far as her labor cannot find employment, it must emigrate, 
as it has done by crowded packet lines, to Australia, Canada, 
and the United States. 

Which country will be most injured by this commercial 
warfare ? 

We answer, decidedly, the protected, because England 
would not have made, on the iron sent us, more, say, than 
ten per cent ; while we make a clean loss, as we have seen, 
of some thirty or forty per cent ; that is, all left of the fifty 
per cent enhancement of price, after the profits of the Ameri- 
can manufacturer are deducted. 

But it may be urged, that, if a part of the labor of the 

country had not been taken from agriculture, its products 

would have declined in value, and this would have counter- 

( balanced what was lost by the manufacture of iron. This is 

a favorite view with a certain class of minds. There are 



100 EXCHANGE. [BOOK III. 

many theorists who are continually foretelling the decline 
of prices, and general starvation ; many business men, who 
are expecting daily to exhaust the market, and reach the 
limit of their industry ; many householders, who dread 
the disappearance of fuel and light from the earth, with un- 
told horrors beside. Such persons are much afraid of using 
nature up. 

The markets of the world being open to us, all our sur- 
plus products would remain in demand. Provisions, espe- 
cially, are a sort of " legal tender " the world over ; and there 
seems to be no immediate occasion to anticipate their disuse. 
There is no market that keeps open so long and surely as 
this. The English ports were wrested from the monopolists 
of grain, by a power that government and society could not 
resist, — the power of indignant want. The misfortune of 
overdone agricultural products is one that statesmen may 
well leave to their successors. 

But, if there were no other markets open but those at 
home, there would be a certain tendency, not at all frightful 
in its vehemence, to a decline of prices, in a country like 
ours ; because an agricultural people, under favorable cir- 
cumstances, always produces more than it consumes, and 
would, sooner or later, create such a surplus as to lower the 
price. Admitting, then, all that is claimed for such a pos- 
sible glut, let us inquire into the results. 

As soon as wheat, to take it as the exponent of all agricul- 
tural products, had fallen so low that it required as many 
days' work to get a ton of iron by raising wheat as by work- 
ing the ore, the manufacture would be successfully intro- 
duced. That is precisely the point at which this branch of 
industry would legitimately begin. It would not spring up 
suddenly, at some arbitrary point, but grow up in those 
places where the natural protection was most felt, and facili- 
ties for production were greatest ; for instance, in a region 
far from any considerable market, where iron could only be 
obtained by long and expensive transportation, where the 



CHAP. IV.] FALLACIES OF PROTECTIVE THEOEY. 101 

land was not adapted to wheat, but where ore, coal, and lime 
were plentiful. It would extend to all parts of the country 
where it was as advantageous as wheat-growing. The busi- 
ness would be introduced without any disturbance of existing 
interests ; without wild, extravagant, and wasteful experi- 
ments. It would be a natural development and growth, not 
an arbitrary creation. It would feel its way with a sense as 
subtile and secure as that with which the plant raises itself 
into a world of big trees and wild tornadoes, and fierce, rush- 
ing life. 



CHAPTER IT. 

THE FALLACIES OF THE PROTECTIVE THEORY. 

We leave now the illustrations of the principles of protection, 
as exhibited in the manufacture of iron. We believe we 
have shown the unsoundness of all that political philosophy 
which proposes to substitute artificial for natural laws, in 
production. But there still remains some popular argu- 
ments, which we will notice. 

1st, It is claimed as good policy to protect " an infant 
manufacture " until it is well established, because it will 
then take care of itself, and ultimately confer great wealth 
on the country. Of this it may be said : — 

(a) There is no assurance, under a system which removes 
the sole test of usefulness and self-support from the produc- 
tion of a people, that enterprises will not spring up which 
never will come to maturity, which have no vital force of 
themselves, which exist solely by reason of the protection, 
and will never become remunerative. If good enterprises, 
why not bad, since the test of bad or good has been with- 
drawn ? In such a rankness of unnatural growth, it is far 
more likely that weeds will be produced than useful plants. 
Thus the whole industry of a country may become perverted 



102 EXCHANGE. [BOOK III. 

and falsified by removing the principle of competition. There 
will be no reason for healthful industries to spring up, which 
will not also give life to such as are weak, tardy, ephemeral ; 
to such as are parasitic and exhausting. 

(5) Other things aside, the desirableness of raising the 
" infant " will depend very much on the length of time and 
total cost required to bring it to full age and size. There 
have been nations that exposed sickly and unpromising chil- 
dren, holding it to be for the advantage of the state to rear 
none but such as promised to become vigorous and useful 
members of society. Religion and humanity have changed 
this, out of respect for the image of God found in every hu- 
man creature ; and now the cripple and the idiot are reared 
tenderly and patiently. But the protective policy extends 
the same kindness and forbearance to industry. No matter 
how plainly palsy, scrofula, or fatuity may appear in the 
form or features, the infant is sure of an affectionate solici- 
tude, that only changes to become more anxious as the infant 
gets punier and weaker. 

France protected one of these industrial infants ; i.e., the 
beet-sugar culture. Dr. Wayland said of it, in 1837, " The 
present protection costs one million and four hundred thou- 
sand pounds per annum. Suppose this to continue for 
twenty years, it will amount to no less than twenty-eight 
million pounds sterling ; the interest of which, at five per 
cent, will bring, at two and a half pence per pound, one 
hundred and twenty-six million pounds of sugar, or nearly 
the whole annual amount of sugar now consumed in France." 
In 1865, we can say that this child, born in the early part 
of the great Napoleon's career, has not yet become strong 
enough to walk alone, or hardy enough to take the air. 
Supposing an equable annual consumption of any article, it 
requires but common school arithmetic to show that a pro- 
tection to the extent of fifty per cent, continuing for eighteen 
years, would amount to a sum, which, at six per cent inter- 
est, would furnish the nation in that article to the end of 



CHAP. IV.] FALLACIES OF PEOTECTIVE THEORY. 103 

time, without ever paying any thing more for it. A child 
that is so costly to bring up ought to make a very useful 
man ; whereas it is generally true that such children have 
to be brought up three or four times over, and then live on 
the poor-rates. If such a protection, however, were to be 
continued only eighteen years, and the necessity for it then 
cease, the industry having become self-supporting, it would 
yet be true that every pound would have two prices, added 
to each other : one, the present cost of making ; the other, 
interest on old protection equal to the present cost. 

In fact, iron and sugar have been protected in this country 
since 1816, and the duties still continue. And all for what ? 
"Where is the advantage of making a great annual sacrifice, 
for a long time, to establish an industry that will grow up 
of itself as soon as it will pay, as was growing up slowly, 
but successfully, before there was any protection ? 

(c) Finally, no sound and healthful manufacture needs 
protection at all. The phrase " infancy " is entirely soph- 
istical, as applied to any branch of legitimate industry. 
Each one comes full-grown and full-armed into life. We 
do not mean that it has no growth, as far as extension is 
concerned. It certainly does go on from town to town, from 
State to State, out of small beginnings. But there is no 
infancy, so far as completeness or robustness of life is con- 
cerned. Suppose, for example, that there was but one man- 
ufacturer of iron in the country, and he produced only to the 
amount of five thousand dollars a year. Yet, if he could 
bring to the market as good and cheap an article as the 
foreigner, he would be none the worse for being a solitary 
producer on some mountain in Pennsylvania. The secu- 
rity of any manufacture does not reside in the number of 
those engaged, but in its power to meet the public wants. 
However few may be employed, however humble their be- 
ginnings, they stand simply in their ability to sell a good 
article at a reasonable price, and are as strong in this as 
ever was the proudest guild of London. 



104 EXCHANGE. [BOOK III. 

Of course, there is a period in every enterprise when all 
is experiment and outlay. But capital is always ready and 
able to meet the necessity. It belongs to capital to do this ; 
for it gets the remuneration of it when the yield begins. 

There is a remarkable confirmation of the truth of these 
remarks in the history of the boot and shoe manufactures of 
the United States. They never asked for protection ; never 
received any notice in all the conflicts for increased tariffs. 
The trade grew up naturally, steadily, and profitably, from 
the first ; increasing gradually, with the growth of the coun- 
try, until, at the present time, it is not only the largest, but 
one of the most profitable branches of manufacturing indus- 
try. In Massachusetts alone, this manufacture extends to 
over fifty millions of dollars annually, and is by far the most 
advantageous branch of industry in the State. 

There is another popular argument for protection. 

2d, It is claimed that we ought to protect our labor against 
the pauper labor of Europe. 

Does a restrictive tariff do this ? Does it prevent the 
laborers of Europe from entering into competition with ours ? 
Does it not, in fact, bring them to our very doors ? 

For fifty years prior to the date of the first important tar- 
iff, viz. 1816, there was no immigration of any consequence. 
Soon after this, we began to attract skilled workmen. Some 
were expressly hired to come over to teach us how to spin, 
weave, &c. As we raised the tariff and increased manu- 
factures, the current increased, until it has inundated the 
country. All Europe pours in its starved labor upon us. 

What kind of labor naturally emigrates ? The poorest, 
because the better by character and capacity can protect 
itself longer at home. An employer does not turn his good 
men off first. 

Why so large a proportion of Irish ? Because theirs is 
the cheapest labor ; the first thrown out in any reduction. 
The tide, once turned upon us, kept swelling, till our nation- 
ality is almost in dispute. This immense immigration never 



CHAP. IV.] FALLACIES OF PROTECTIVE THEORY. 105 

came here in obedience to natural laws, but to the legisla- 
tion of Congress. Instead of protecting American labor 
against the pauper labor of Europe, we have brought that 
labor here to meet the American citizen face to face, on a 
perfect level, with equal civil rights, and have given to him 
the advantage of our immense landed capital. Whether this 
is good state policy ; whether a forced immigration, in such 
vast numbers as to prevent an easy and natural assimilation 
with the native population, is desirable or not, — it is not our 
province to discuss. That is a political question. It only 
belongs to us to show that no protection has been given to 
American labor. 

3d, It has been gravely said, that the general average of 
all profits is raised by a protective policy. 

If true, this is a valuable discovery. It affords the easiest 
known method of making everybody rich at once, and with- 
out effort. Government has only to place sufficient restric- 
tions on trade to carry up profits to one hundred per cent ; 
and, when all trade has ceased, everybody's profits will be 
immense ! 

The folly of such assertions is too apparent to justify any 
considerable notice. 

Where are the enhanced profits to come from ? Out of 
the diminished production ? Is the whole lessened, and 
every part increased ? So far as protection creates a mo- 
nopoly at the expense of the public, it may. for a while, add 
to the profits of an individual or a class, but only by taxing 
other industries for the purpose. 

4th, But it is urged, leaving mere argument, do we not 
know that protection especially develops manufactures ? and 
are not manufacturing countries found to be, in fact, richer 
than those which are more exclusively agricultural ? Both 
propositions are true in an isolated form. 

Other things equal, in a normal state of things, manufac- 
turing communities are older than agricultural, and, of 
course, have much greater accumulated wealth. England 



106 EXCHANGE. [BOOK III. 

is older and richer than the United States ; Massachusetts 
than Ohio. Manufactures arise because a people have a dense 
population, abundant capital, and great industrial activity. 
Under such circumstances, great wealth will be created, be- 
cause these are the fit conditions of creating wealth. Such 
creations are natural. 

It is, without question, true, that in an equal manufac- 
turing population will be found a greater accumulation of 
wealth. One important reason of this is, that a larger 
share of the population are engaged in production, and a 
larger amount of capital is employed. Women and chil- 
dren, who could earn but little in agricultural labors, can 
earn much in manufacturing. This is one of the most 
striking results of a division of labor, as we have already 
shown. As we carry on agriculture, women and children 
do little, though in Continental Europe they do much. 
Agriculture, too, can be performed only in certain portions 
of the year. Manufacturing need never stop, summer or 
winter, cold or hot, fair or foul. This makes a wonderful 
difference. 

All these, however, are economical advantages, which 
manufacturing communities have, when properly constituted 
and employed. These are reasons which may induce such 
industry ; never reasons why it should be compelled. If, 
with so great a superiority, manufactures do not arise 
freely and support themselves fully, it becomes a double 
argument for not forcing them. If such advantage will not 
secure free manufacturing, it is certain that compulsory 
manufacturing will not secure these advantages, without 
the sacrifice of other interests. 

But all this argument in favor of manufactures, and 
these anticipations of agricultural glut, come out of a false 
idea of what are the natural relations of these two great 
branches of labor. Granted, that manufactures are a 
desirable form of national industry, give a good market for 
the produce of the farm and the mine, and help build up 



CHAP. IV.] FALLACIES OP PROTECTIVE THEORY. 107 

the common wealth ; yet it is not necessary to bring them 
on by a forcing process, for they come of themselves as 
soon as profitable. We have already shown (page 86) 
that certain large classes of manufactured products receive 
such a natural or local protection as insures their home 
growth. But there are other classes which have an encour- 
agement even more liberal. There is a principle always 
operating to bring manufactures out, on every part of the 
earth's surface. It is the impossibility of carrying on cer- 
tain branches anywhere but at the place where the article 
is wanted. The survey, grading, and construction of rail- 
roads and canals, forming as they do an immense portion of 
the public industry, cannot be brought within the purview 
of the custom-house. They are necessarily confined to the 
field in which these means of transport are to be used. 
These may stand as examples of a vast class of industry, 
which arises indifferently to protection. So all tinkering, 
patching, and repairing, great or small, must be done on 
the spot. A glance at any village, no matter how intimate 
its connection with some centre of trade, will show how 
large a share of its labor, other than agricultural, is em- 
ployed in its local work ; so that, one way and another, 
these classes of manufacturing interests, which inevitably 
come to the community without help of law, form a very 
considerable part of the whole. 

The value of manufactured articles imported, for the four 
years preceding the war of the Eebellion, ranged from one 
hundred and fifty to two hundred millions a year ; while 
the authorities of the treasury and of the census esti- 
mate the value of home manufactures at not less than one 
thousand millions a year, for the same period. Such 
comparisons are necessarily crude ; but it would be far 
within bounds to say that four-fifths of all the present 
consumption of manufactures would be supplied by our na- 
tional industry, irrespective of protection. All the matter, 
then, comes to this : Shall we impose heavy duties to force 



108 EXCHANGE. [BOOK III. 

labor and capital into such channels as shall provide, at 
great expense, the remaining fifth of the manufactures we 
consume ? 

5th, Perhaps the most popular plea of all for protection 
looks to " the development of our natural resources." This 
does not propose to increase the gross or net product of 
national industry, does not assume or assert that the labor 
and capital of the country are not well employed at present ; 
but it remembers the great mineral and metallic wealth we 
have yet hidden in the Middle States and the West, and it 
sighs for the thought of their uselessness. It regards as 
of no consequence the fact that digging or working the 
ores will not pay. It can only exclaim, " What a pity that 
such great advantage should be unimproved ! " These 
reasoners would call labor off from the rich fields of agri- 
culture, from no other motive than a desire to see our 
wonderful mineral treasures developed. 

The answer to this species of patriotism may be very 
short. Since Nature has taken thousands of years to form 
these ores and store these mines, man can at least take 
time enough to wait till it will pay to dig them. It may 
seem to some a pity they should remain underground ; but 
the true cause of the misfortune resides in the fact that we 
have not population enough to settle densely one-tenth of 
our territory. It is a misfortune that will cure itself as our 
numbers increase. We can certainly afford to leave for 
future generations what we cannot afford to take for our- 
selves. 



CHAPTER V. 

peotection (concluded). 

We have said that legal protection may be imposed from 
one or more of four general reasons. 
We have discussed the first two ; viz., — 






CHAP. V.] PROTECTION. 109 

To raise a revenue. 

To encourage the growth of certain commodities at home. 

We now come to the remaining reasons, which will de- 
mand but little attention, as their principles have already 
been developed. 

To support existing manufactures. 

Here we leave the expediency of founding special indus- 
tries by a system of protection, and confine ourselves to the 
question, whether, such industries having been begun and 
developed under high tariffs, capital having become so 
engaged, labor having become so employed, it is not neces- 
sary to continue the protection. 

So far as this acknowledges a moral obligation on the 
government to save from loss those who have followed 
the guidance of its laws, it is a question for the statesman. 
But the economist can urge, that, if the burden of such 
bad investments must be borne by the public, it would be 
preferable to have it assumed in the shape of direct J relief 
to the manufacturers, rather than by a system which is 
sure to multiply such unfortunate enterprises, and perpet- 
uate their weakness. That great caution and forbearance 
are necessary, in removing even a false institution, is not a 
maxim which economy has to teach politics. 

And here we come face to face with the great practical 
difficulty of protection in our country ; that which, if all 
its principles were triumphantly proved in general reason- 
ing, should still throw it out of our legislation. If it were 
proved harmless, if it were proved beneficial, there is a 
strong reason against ever attempting to realize it here. 
That difficulty resides in the varying politics of our coun- 
try. Injurious as protection is to the best interests of the 
country, any system of it, however severe, would be prefer- 
able to the " open-and-shut " policy, absolutely unavoidable 
in a government like ours. It is not within the bounds of 
reason to suppose that the alternate successes of parties 
will not continue to convulse our national legislation ; and 



11.0 EXCHANGE. [BOOK in. 

therefore it is with emphasis true, that a consistent system 
of protection is only possible in a government with great 
conservative force and great central powers. A represent- 
ative body, embracing the most opposite interests, swayed 
by such influences and intrigues as notoriously possess 
such an organization, and changed in all its parts every 
few years, is not the place in which to adjust accurately 
and dispassionately the economical parts of a nation, and 
distribute the agencies of production. 

It is our felicity, that our well-being does not depend on 
such counsels, but that great Nature has fixed the forces 
of industry in perfect harmony, and to the most benefi- 
cent ends. 

To secure commercial independence. True commercial 
independence is attained by any nation, when its natural 
resources are so developed and cultivated that it becomes 
a power in the world, can command the products of the 
industry of every clime, because it can furnish that which 
all others want. This is independence in commerce. In- 
dependence of commerce is the independence of the savage, 
or of undiscovered countries. To assume that such inde- 
pendence of all mutual helpfulness is desirable, outrages the 
earliest sense of humanity. 

But it is claimed that such a separation from all offices 
of kindness is necessary to protect nations in war. 

So far as the state urges the claims of its own safety, 
the principles of economic science must be silent. But 
this interference with the laws of value, for the preserva- 
tion of the national life, must be strictly limited to the 
absolute necessities of war. 

There are many reasons to suppose, that this interference 
is rarely, if ever, necessary. There are very few states 
which could not, on occasion, supply from their own soil 
the means of warfare. It would be much better that nations 
should, by anticipation, secure from abroad a sufficient 
amount of material, than by indirect efforts distort their 






CHAP. V.] PROTECTION. Ill 

industry to an extent many times greater than would be 
involved in obtaining beforehand, by commerce, whatever 
might be necessary. 

But finally and decisively, if it is alleged, under any cir- 
cumstances, to be essential that a nation should possess 
within itself the means of war, we answer that it should 
undertake the manufacture by a special government agency, 
not by changing the entire industry of a people to produce 
this as an incidental result. Such is, in fact, the procedure 
of most, if not all, civilized nations, and leaves no force 
in the plea for national independence. But the argument 
for protection from the necessities of war has almost dis- 
appeared in the intenser light of our growing civilization. 
The independence of each nation in commerce, existing 
harmoniously with its dependence on commerce, forms 
the best hope of peace and tranquillity for the future. It 
may be safely assumed, that the probabilities of war be- 
tween any two peoples are inversely as their commercial 
relations. The great reason against war, in the present 
age, is not the expense of maintaining armies, nor the de- 
struction of life, but the interruption of trade. This not 
only puts peacemakers in the councils' at home, but makes 
all nations mediators between the parties at variance. 

The intercourse between the United States and Austria 
is but trifling. A little fire would kindle great strife be- 
tween these two peoples. There would be no great motive 
to forbear and adjust the occasions of dispute. The United 
States and England, on the other hand, have a yearly trade 
of four hundred and fifty millions of dollars, which inter- 
poses itself between the nations, however angry, a great 
standing policy of peace. 

All general economic principles urge the extinction of 
war. All special economical interdependences postpone 
and weaken the provocations of war. Resting on this prin- 
ciple, we shall find nothing good in the scheme of making 
nations independent, that they may the better fight. We 



112 EXCHANGE. [BOOK III. 

shall recognize commerce as the great bond of human 
brotherhood. 

But, after all argument has been closed on the principles 
of protection, we still find one plea remaining. If freedom 
of intercourse, it is said, were only universal, it would be 
well ; but, since it is not, each nation must protect itself, 
and do as it is done by. 

Let us suppose that England refuses to take our wheat. 
Would that be a good reason why we should not take iron 
from her, if we get it so, cheaper than by making it ? We 
have already shown that the protected suffers more than 
the excluded community. If England should exclude our 
wheat, whom would she injure ? Ourselves somewhat, that 
is, to the extent of the profits we should have made ; her- 
self still more, that is, to the extent of the vastly enhanced 
cost of the grain. If, in retaliation, we exclude her iron, 
whom do we injure ? Her somewhat ; ourselves much more. 

Let us examine more in detail the consequences of our 
exclusion from foreign ports. If partial, we could still, by 
selling our wheat, get iron cheaper than by making it. 

If total, the closing of our markets for wheat could turn 
our industry towards other forms of production. This 
would constitute one of the conditions under which manu- 
factures would legitimately arise ; and it would be more 
sensible and healthful than if it came as the result of our 
own restrictive legislation. 

The full consequences of the policy of retaliation would 
be, each people refusing to receive the products of others, 
trade annihilated, industry crippled, all nations isolated, 
with no mutual interest but robbery and plunder. 

We have said, that England, by imposing a duty, say of 
fifty per cent, on our wheat, would injure us to the extent 
of our possible profits, and herself to the extent of the 
enhanced cost of the grain. On a closer inquiry, we shall 
see that the injury to ourselves is compensated in part ; that 
to herself is aggravated. 



CHAP. V.J PROTECTION. 113 

The consequence of such a duty would be, that the con- 
sumption would fall off in some degree. Her poor would 
subsist more on potatoes, or other articles cheaper than 
flour. But, notwithstanding these shifts, it would be found 
that it cost her laboring population more to live, even 
though they lived more meanly. Their wages must be 
raised : this is certain. All taxes laid on commodities 
which the laborer must use have the effect to reduce the 
quantity or quality of his food to a certain point ; but he 
must live, and his wages must be raised to enable him to 
do so with the enhanced price of wheat. This would make 
it more expensive for England to manufacture her goods, 
and would, in part, so far reduce her ability to compete in 
the markets of the world. By such a policy, she would 
weaken her own industry, and to a degree exclude herself 
from commerce. This would afford another condition 
under which manufactures would legitimately arise in this 
country, whose wheat was excluded. 

That this is no impossible supposition, will be evidenced 
by the condition of England before the repeal of the corn 
laws. The movement in favor of that great measure origi- 
nated in Manchester,, and was carried, against the nobility 
and the landed interest, by the resolute efforts of the manu- 
facturing class. 

What advantage is there in refusing to buy of a nation 
because it refuses to buy of us ? It is retaliation and 
revenge, not self-defence or self-vindication. The first 
historical instance of such retaliatory legislation is the 
establishment, by the Venetians, of customs duties, to de- 
prive foreigners of the benefit of their trade ; in return for 
which, Charles V. imposed twenty per cent duty on all 
Venetian merchandise. The most wise and useful econom- 
ical act of this century was that by which, by the exertions 
of Mr. Cobden, England and France, so long contending 
only in exclusions and mutual injuries, threw open their 
ports to the free entry of hundreds of articles, to the com- 

8 



114 EXCHANGE. [BOOK in. 

mon benefit of both, and to the advancement of good feeling 
and hearty alliance ; a measure, that, between the years 
1859 and 1863, increased by seventy-three per cent the 
trade of Great Britain with France, while proving no less 
beneficial to the labor of the latter country. 

We infer, from all that has preceded, that " protection " is 
an unfortunate expression. To restrict industry, to put the 
bad on the level of the good, to remove from industry its 
only guaranty of a full reward, to contract trade and neu- 
tralize the gifts of Nature, is not protection, in any proper 
sense of the word. It is spoliation. 

In conclusion of the subject, it may be proper to allude 
to the great natural characteristics of our national indus- 
try. We see that the important fact of our condition is 
unequalled agricultural power. Possessing such an advan- 
tage, with an active, enlightened, and enterprising population, 
and an industry perfectly untrammelled, we should naturally 
become the granary of the world, and create, as a certain 
consequence, the most extensive and powerful commercial 
and naval marine on the globe. We should secure, by sea 
and land, a greater power to give help to friends, or hurt to 
foes, than any other people, and should rapidly attain our 
best national condition. 

We should have, not only the most profitable, but the most 
salutary industry, as favorable to the acquisition of unlim- 
ited wealth as to a sound physical development and high 
moral culture. We should have manufactures, also, in their 
spontaneous growth. They would arise — they were arising 
previous to any tariff — as fast as the best interests of the 
country required them. 

States and sections, like New England, would naturally 
and profitably undertake manufactures, because they have a 
thinner soil, a denser population, and a larger capital rela- 
tively, than others. Such regions would be the workshops 
of the nation, while the prairies of the West and the rich 
uplands of the Middle States would be the nation's farms. 






CHAP. V.] PEOTECTION. 115 

What manufactures arise of themselves should be wel- 
comed, for they come in obedience to natural laws ; they are 
founded on extraordinary facilities, on high natural protec- 
tion, on local necessities. But we bind the swelling thews 
of the youth when we endeavor to force on America the 
industry of Europe. We grow enough every year to cover 
some of the kingdoms of the old world. Every year's 
growth stretches over and appropriates some country, fer- 
tile as the plains of the Nile, and bearing every manner of 
precious or useful ore. Here is our destiny. This is our 
wealth. 

It cannot be too often repeated, because it is the great 
fact in regard to manufactures, that they only need to be 
"let alone." When a distinguished French minister of 
finance called the manufacturers of that country to Paris, 
and asked what he could do for them, they made the well- 
known answer, " Laissez nous faire." It is within our 
personal knowledge, that, when the proposal was made to 
impose the protective tariff of 1816, the leading manufac- 
tures of Rhode Island, amongst whom was the late Mr. 
Slater, the father of cotton-spinning in this country, met at 
the counting-room of one of their number, and, after delib- 
erate consultation upon the matter, came unanimously to 
the conclusion, that they Had " rather be let alone." Their 
business had grown up naturally, and succeeded well ; and 
they felt confident of its continued prosperity, if uninter- 
fered with by government. On the other hand, they argued, 
that, by laying a protective tariff, the business would be 
thrown out of its natural channels, and become fluctuating 
and uncertain. How well founded were these anticipations 
subsequent events have fully shown. 

It will, doubtless, be a matter of profound astonishment 
to the future historian, that a people who had a free and 
untrammelled industry, with natural advantages for the 
most productive agriculture in the world and for the legiti- 
mate growth of every kind of manufacture, should ever 



116 EXCHANGE. [BOOK III. 

have asked for restrictions upon trade. But, in truth, they 
did not ask for protection at the outset. It was forced 
upon them by politicians, irrespective of their wishes, for 
the avowed purpose of securing a home market for cotton. 

All New England was opposed to the policy, and pro- 
tested against it; yet it was carried. Special forms of 
manufacturing were brought into existence ; and, as these 
were sickly and needed all the help they could obtain from 
government, an interested party was' formed which clam- 
ored incessantly for protection. Yet it was not until the 
third tariff, that of 1824, had gone into operation, that the 
Northern and Central States became the partisans of pro- 
tection. As New England was the last to assent to restric- 
tive legislation, so she will undoubtedly be the first to ask 
for its abandonment. No policy could be more adverse to 
her permanent interests. She has great natural advantages 
for manufacturing. With these, she can carry them on 
successfully. By high protective duties, other sections of 
the country, not having the same natural advantages, will 
be led to introduce the same branches of industry,* and she 
will find her severest competition at home ; while all parts 
of the nation will be crippled by a false system, equally 
against the laws of nature and value ; since protection, as 
previously shown, puts the bad on the level with the good, 
and destroys all natural tests of usefulness in production. 
It should always be borne in mind, that protective duties 
must be high enough to enable the home manufacturer to 
get, at least, average profits ; that is, such profits as com- 
modities in general afford. He will not make broadcloth 
unless it is as profitable as any other branch of trade, manu- 
facture, or agriculture. Nothing short of this is protection ; 
and the duties must be carried upwards, until they arrive 
at that point in which those who are manufacturing to the 
greatest disadvantage can make average profits ; otherwise 
there will be a call for higher duties. This is one of the 

* This is already becoming quite apparent. 



CHAP. VI.] BALANCE OP TEADE. 117 

practical difficulties of protection. The higher the duties 
imposed, the greater will be the rush into the protected 
branch of industry ; and none will be satisfied until they 
make the business profitable, however imperfectly con- 
ducted. Hence there will be a constant call for increased 
duties. Witness the history of protection in the United 
States, — a tariff in 1816, a higher one in 1820, higher yet 
in 1824, still higher in 1828, with continued changes from 
that time to this. 



CHAPTER VI. 

BALANCE OP TEADE. 

i 

"What is meant by the balance of trade ? 

An actual balance of trade is the difference between the 
amount of values exported and the amount of values import- 
ed. This seems a very simple proposition ; yet the question 
is one of great complexity, from the fact that it is difficult 
to determine with certainty whether the exports of a nation 
do or do not actually equal the imports. Superficial ob- 
servers resort to the financial returns made to the govern- 
ment ; and finding, for example, that the imports of 1854 
amounted to $304,562,381, while the exports were but 
1278,241,064, leaving a difference of $26,321,317, they has- 
tily conclude that the balance of trade was against this 
country to that amount. Such a conclusion would not 
have a sufficient foundation. 

To understand this subject, we must notice that the 
exports are stated at their value at our own custom-houses, 
while the amount imported is stated at the value in foreign 
countries.* If we suppose the amount exported in 1854 
was on American account, and paid a profit of only nine 

* Besides, exports are estimated at currency prices; imports, in gold 
values, — a very wide difference under a depreciated currency. 



118 EXCHANGE. [BOOK III. 

per cent on the custom-house valuation, we shall find that it 
will amount to $25, 041, 695, a sum very near the assumed 
balance ; and, if so, the commodities exported actually 
paid for the amount imported, and the supposed unfavor- 
able balance is annihilated. As the goods exported should 
sell for enough abroad, and as they do generally sell for 
enough to pay all charges of freight, insurance, &c, with 
reasonable commissions, say in all fifteen per cent, we may 
justly infer that there was, in fact, a balance in favor of this 
country in 1854. But the question whether there was or 
was not an actual balance that year can only be determined 
by ascertaining whether our exports generally sold for an 
advance sufficient to pay for the imports. This is known 
only to those engaged in or familiar with the results of 
the export trade of 1854. The balance might have been 
greater or less than what it appears from custom-house 
statistics. 

On the other hand, in 1855, our exports exceeded our 
imports by $13,688,326. Does that show a balance in favor 
of the United States ? Apparently ; yet there might have 
been a loss upon our exports which would more than bal- 
ance the $13,688,326. 

Although the financial tables of the Secretary of the 
Treasury do by no means decide the balance of trade, and 
the custom-house returns are never conclusive evidence, 
yet there are cases in which there is no reasonable 
doubt on which side the balance is. In 1836, for example, 
we exported one hundred and twenty-eight millions, and 
imported one hundred and eighty-nine millions ; an excess 
of sixty-one millions, making a difference of sixty per cent 
over exports. In this case, there could be no doubt there 
was a larger actual balance against the country, because the 
profits could not have been equal to the excess. So too, to 
go further back, in 1816, the exports were fifty-two mil- 
lions ; imports, one hundred and twelve millions ; excess, 
sixty millions, or more than one hundred per cent. The 



CHAP. VI.] BALANCE OF TEADE. 119 

unfavorable balance in both cases caused great distress by 
the necessary exportation of specie. 

Balance of trade how adjusted. 

We have heretofore said that an unfavorable balance 
must be liquidated with specie. This is the general fact ; 
but it is not always disposed of in that way. For example, 
the balance against the United States in 1853, as per Finan- 
cial Report, was thirty-seven millions. Now, if this were in 
fact an actual balance, a part of this might have been 
extended to the next year, and paid in cotton or wheat ; or, 
what is more probable, several millions of railroad or other 
stocks might have been sent abroad and sold, and the bal- 
ance settled from the proceeds. 

If the commerce of a country is in a really prosperous 
condition, the value of its imports will, in the long-run, 
exceed its actual exports, because its export trade should 
pay a profit. No country is enriched by trade, unless its 
aggregate imports do exceed in value its exports. It is 
no matter whether the excess of imports over exports is 
brought into the country in specie or any other desirable 
commodity, provided its own currency be a true standard 
of value. 

The trade of the United States for 1863 showed the fol- 
lowing results: Exports (Financial Report, 1864), $350,* 
152,125; imports, $252,187,587; balance, $97,864,538. 
The returns also showed an export of gold to the amount 
of $82,364,482, an import of gold of $9,584,105, giving a 
balance of $72,780,377. A considerable part of this gold 
was, doubtless, sent abroad for safe keeping by timid capi- 
talists, and not over-loyal citizens. The large balance of 
seventy-two millions in favor of the United States was no 
indication of a profitable trade that year ; quite otherwise. 
The balance of gold exported in 1864 was ninety-one mil- 
lions. Another fact, that throws additional conjecture upon 
the apparent balance of trade, is, that false invoices are 
used to an enormous extent at our American custom-houses. 



120 EXCHANGE. [BOOK III. 

Whenever duties are charged upon the cost of the com- 
modities, it is an object to have them invoiced as low as 
possible. Fraudulent invoices are often made out abroad 
and sworn to by the importers here, and thus the actual 
value or amount paid for the foreign merchandise is not 
accurately exhibited. The Revenue Commissioners (see 
their Report to the Secretary of the Treasury, January 29, 
1866, page 45) estimate that the frauds at the New-York 
Custom-House alone are from " twelve to twenty-five mil- 
lions annually." The aggregate of these frauds throughout 
the country has been estimated as high as forty millions per 
annum ; but, if they amount to only thirty millions, the 
" balance of trade " is seriously influenced by them. 

There is still another consideration ; viz., that the United 
States are much indebted abroad, and a large sum is 
required to pay the annual interest. This can only be paid 
by our exports of merchandise or specie ; for both are alike 
reckoned in our list of " exports." We owed $500,000,000 
abroad in 1860 (see Foreign and Domestic Commerce, 1863, 
page 42, Treasury Report). The Comptroller of the Cur- 
rency, in his Report for 1865, page 7, estimates the amount 
of our securities sent abroad the last jive years at $713,000,- 
000, — in all, then, $1,213,000,000. The interest on this 
sum, at six per cent, will be $72,780,000 ; and this must be 
provided for in our exports. 

Many considerations of this general character might be 
brought forward ; but sufficient has already been said, we 
trust, to show what the real nature of a balance of trade is, 
and how difficult a matter it must always be to determine 
with accuracy upon which side it actually is, and what its 
amount. 



CHAP. I.] BARTER AND CURRENCY. 121 



PART SECOND.— INSTRUMENTS OF EXCHANGE. 
CHAPTER I. 

BARTER AND THE DIFFERENT FORMS OF CURRENCY. 

We have discussed the principles upon which exchanges 
are made. We now come to consider the instruments by 
which they are effected. 

These are of three kinds : — 

1st, Barter. 

2d, A common medium, or currency. 

3d, Different forms of credit. 

No person produces every thing he wishes to consume. 
Even in the savage state, men will obtain different products, 
as they have skill and opportunity. These they will ex- 
change among themselves in kind. 

As the civilized state appears, the necessity for inter- 
change of commodities increases. Every mechanic must 
exchange his products with every other mechanic, and all 
these with the agriculturist and fisherman ; so that ex- 
change becomes one of the greatest departments of human 
industry. But, under these circumstances, barter, or ex- 
change in kind, becomes a very inconvenient and clumsy 
mode of effecting the desired object. For example, the 
farmer may wish to exchange wheat for a hat ; but the hat- 
ter is already supplied: what, then, will the hatter accept? 
A table. The farmer must then go to the cabinet-maker, and 
offer his wheat for a table. But the cabinet-maker is sup- 
plied with wheat. He would, however, accept a pair of 
boots. The farmer applies to the boot-maker, who happens 
to wish for wheat and accepts the offer. With the boots the 
farmer gets the table, and with the table gets the hat which 
he desired. 



122 EXCHANGE. [BOOK III. 

In such a state of things, this was the only process by 
which exchanges could be effected ; circuitous, and expen- 
sive in time and labor, as it was. 

We might have supposed a far more difficult case ; but 
this is sufficient to illustrate the inconvenience of barter, or 
the direct exchange of commodities. But there is still 
another difficulty, of scarcely less magnitude. When arti- 
cles to be exchanged became numerous, it would be found a 
very intricate matter to establish satisfactorily the relative 
value of each. For example, how many sheep shall be 
given for a cow ? How many cows for a horse ? How 
much corn for a bushel of wheat ? How much butter for a 
gallon of molasses ? How many eggs for a pound of tea, 
sugar, or coffee ? How many of any or all of these for a 
cart, plough, spade, chair, table, &c, through an intermina- 
ble series of exchanges ? 

Under such circumstances, there could be no such thing 
as price, because there would be no common standard, to 
which the value of all articles could be referred. 

What, then, was wanted ? Evidently, some article which 
all persons, either by common consent or the force of law, 
shall accept for whatever they have to sell, and by which 
they will measure the value of any thing sold. 

That article would perform two important functions ; viz,, 
it would be an instrument of exchange, and a standard of 
value : in other words, it would be money. 

We learn the true nature of money, then, from its origin 
and the functions it performs. These offices or functions 
we must examine in detail. 

1st, As a medium of exchange. This may be wholly con- 
ventional. Any thing, which, by general consent or in 
obedience to law, all receive in exchange, will answer the 
purpose. So far as this function is concerned, it is of no 
consequence whether the article has value or not: safety 
and convenience are the only considerations of importance. 



CHAP. I.] BARTER AND CURRENCY. 123 

Money, in this respect, is simply a counter, token, or uni- 
versal equivalent. 

2d, As a standard of value. Value is not conventional. 
It attaches to all objects which are desired, but cannot be 
had without effort or labor. Since the value of any thing 
is its power in exchange, we say that nothing is valu- 
able which will not command labor, or that which costs 
labor. 

" Value implies comparison, appropriation, estimation, measure. 
In order that two things should measure each other, it is necessary 
that they be commensurable ; and, in order to that, they must be of 
the same kind." — Bastiat. 

Therefore, if we would measure value, we must use an 
article that has value in it. The measure must evidently 
have the same quality as the thing to be measured, — 
weight to measure weight, length to measure length, vol- 
ume to measure volume, value to measure value. 

The standard must be as nearly invariable as possible. 
An absolutely invariable standard is unattainable, because 
the standard itself must be subject to the same laws as the 
objects to be measured ; that is, cost of production, supply 
and demand, &c. 

Hence we must take that for a standard, which, on the 
whole and in the long-run, is subject to the least fluctua- 
tion. Of all objects of this kind, we shall see that the 
precious metals are the least liable to great and violent 
changes in value. 

In examining the principle of barter, we were forced, by 
its practical difficulties, to accept the resource of a universal 
equivalent for all commodities. This, in its original form, 
is money. But the course of civilized industry has intro- 
duced several forms of such an equivalent, of which the 
money, by which men first escaped from the difficulties of 
barter, is only one. All these forms are classed as cur- 
rency ; and therefore, in discussing the instruments of 
exchange, next after barter we come to the subject of — 



124 EXCHANGE. [BOOK III. 



CURRENCY. 

This is a general term for all the contrivances by which 
society seeks to effect a general exchange of values, and 
discharge pecuniary obligations. There are four distinct 
kinds or species of currency, each differing from the others 
in important particulars. 

1st, The first of these instruments is called money. Any 
article, which, having a universally recognized value in 
itself, all persons accept as an equivalent, or medium of 
exchange, and which, consequently, becomes the standard 
by which all other values are measured or determined, and 
in which all pecuniary obligations are expressed and dis- 
charged, is money. Being composed generally of the pre- 
cious metals, it is often known as " hard-money currency," 
but is more properly a value currency. Real money is 
simply value in a form the most available for commanding 
all other values, a service which all will accept for any 
other kind of service, which measures all other services or 
values most conveniently. 

2d, The second kind of currency consists of written pro- 
mises, made usually by governments, to pay money at a 
distant or indefinite period, which nevertheless, by force of 
law or other circumstances, are accepted as money, and 
perform its general functions. The notes issued by the 
treasury of. the United States, and familiarly known as 
" greenbacks," now (1865) in circulation, are of this de- 
scription. 

They form a strictly credit currency, but, in common par- 
lance, are called paper money. 

3d, A third description of currency is formed of writ- 
ten promises to pay specie on demand, issued in excess 
of the actual amount of specie, or money, in possession of 
the promisors absolutely held for the redemption thereof. 
These notes or promises are generally issued by corpora- 



CHAP. I.] BARTER AND CURRENCY. 125 

tions, called banking institutions, and circulate, while cur- 
rent, as money, performing all its functions. This is called 

a MIXED CURRENCY. 

4th, A fourth kind of currency consists of written prom- 
ises, payable on demand, issued by responsible parties, for 
the payment of which, in full, the specie is actually held in 
trust by the promisors. As such a currency is precisely 
adapted to all the wants of the trading and business classes, 
and fully combines convenience with safety, the two great 
desiderata, it is with great propriety called a mercantile 

CURRENCY. 

Of the four kinds of currency, it will be observed, that 
two, the first and fourth, are classed as value currency ; the 
second, as credit ; the third, as mixed, consisting of value 
and credit. 

The following is a brief recapitulation of the different 
kinds of currency : — 

I. Money i.e. . Specie. 

II. Credit currency . . . i.e. . Promises without specie. 

III. Mixed currency ... i.e. . Promises with part specie. 

TV. Mercantile currency . . i.e. . Promises with full specie. 

After this statement and classification of the different 
kinds of currency, it is proposed to examine each in detail, 
and determine their several characteristics, and also the 
influence of each upon the industrial interests and general 
welfare of mankind. 

No subject is more involved in mystery and uncertainty 
in the popular mind than that of currency. This arises, 
principally, from the fact, that the different kinds are con- 
founded, and the whole matter thereby rendered incompre- 
hensible. The general use of mixed-currency notes, which, 
to a superficial observer, seem to possess all the attributes 
of money, has a tendency to produce this result. 

To obtain a clear and intelligent view of the subject, it is 
therefore quite necessary, that we divest it of all its usual 



126 EXCHANGE. [BOOK III. 

environments and associations, and, for the time being, even 
of the forms and terms with which we are familiar, and 
regard the question as abstractly as possible. 



CHAPTER II. 

I. MONEY. 

Having examined the nature and functions of currency, we 
shall now speak of the actual money of commerce, or the 
■universally accepted equivalent. 

In all ages and countries, this has consisted of the pre- 
cious metals, gold and silver, with the baser metals or alloys 
for fractional purposes. 

Local currencies have been various. Lacedsemon had 
iron money. The Romans are supposed by many to have 
used cattle and sheep in the early periods of their history ; 
and their coins bear the images of those animals, as indi- 
cating their value.* 

Tobacco was once currency, and a legal tender, in 
Virginia. 

The first currency legally established in Massachusetts 
was bullets. The " General Courte ordered [March 4, 
1635] that bulletts of a full boare shall passe currently for 
a farthing a peice, provided that noe man be compelled 
to take above 12 d at a time." Again, it was enacted " that 
merchantable beaver shall pass at X s the pound." In 
1637, the " Courte ordered that Wampumpege should pass 
at six for a penny, for all sums under 12V In 1640 and 
1641, additional laws were enacted, making wampum a law- 
ful tender. 

Many expedients like these have, at different times and 

different countries, been adopted to secure a temporary and 

partial currency ; but from the days of Abraham, who paid 

" four hundred shekels, current money with the merchants, 

* Hence called pecunia, money, from pecits, a flock. 



CHAP. II.] MONEY. 127 

for the field of Ephron," to the present time, the money 
used in commerce has always been composed of gold and 
silver. These, and these only, have formed the universal 
medium of exchange and standard of value. 

The use of these metals arises from nothing conventional. 
No international agreement was ever made respecting them; 
yet they are everywhere and at all times, without hesita- 
tion, received in exchange for whatever any one may wish 
to dispose of. They secure their currency simply by their 
peculiar adapteclness to the purpose. 

What their peculiarities are we propose now to consider. 

1st, They possess value, that is, have power in exchange. 
They cost labor, and are objects of desire. They cannot be 
had without labor, or an equivalent. We have already said 
that the article used as a standard of value must possess 
value in itself, since we can only compare value with value. 
Gold and silver have this indispensable requisite. They are 
subject to all the laws of value as truly as wheat or any 
other commodity. 

2d, These metals are stable in value; that is, the most so 
of known commodities. They are subject to no violent 
changes, like flour or cotton : for example, wheat often 
varies from twenty-five to fifty per cent in a few months. 
They change in value, indeed, from age to age ; but so grad- 
ually is this accomplished as to be quite imperceptible at 
the time. 

The discovery of the Western Continent, which opened to 
the commercial world the accumulated treasures of Mexico 
and South America, caused the greatest change known to 
history ; yet it is calculated, that from 1492 to 1650, a 
period of one hundred and fifty years, gold and silver fell 
only seventy-five per cent, equivalent to half of one per 
cent per annum ; so that even this great change must have 
been so gradual as to have inflicted little injury on individ- 
uals, and could only have been appreciated by those holding 
long annuities or similar securities. 



128 EXCHANGE. [BOOK III. 

3d, They are conveniently portable ; the most so, in fact, 
of all commodities existing in adequate quantity. One 
pound weight of gold will ordinarily command, in exchange, 
fifteen thousand pounds of wheat, thirty thousand pounds 
of Indian corn, five tons of rice, or a ton and a half of 
cotton. 

4th, These metals are malleable. They can be wrought 
into any shape, will receive and retain any impression, may 
be divided into the minutest quantities, and again united, 
with the smallest possible loss. Hence they are admirably 
adapted for coinage, or a great variety of alternate uses. 

5th, They are of uniform quality. Gold and silver are 
always and everywhere the same. Found in California, 
Australia, or Russia, gold is everywhere gold. The iron 
of different countries varies greatly. The copper of Siberia 
is better than that of Germany, while that of Sweden is 
better than that of Siberia, and that of Japan surpasses that 
of Sweden. It is not so with the precious metals. 

6th, They may be readily alloyed or refined. By alloy 
they are made harder, and so adapted to use as money. 
However alloyed, they can easily be restored to their origi- 
nal purity without loss. 

7th, They are indestructible by accident. Fire does not 
consume them ; atmospheric influences cause no decompo- 
sition : so that the gold and silver in use in the time of 
the Ptolemies may form a part of the currency of the world 
to-day. 

8th, They are universally appreciated. The precious met- 
als are regarded as beautiful and desirable in all countries, 
and among all races, civilized or savage. The demand for 
them is without limit. 

9th, They are generally diffused. These metals are 
found in every principal section of the globe, — Europe, 
Asia, Africa, North and South America, and Australia. 

10th, They are sufficiently plentiful. Not more than two 
thirds of the gold and silver now in the possession of man 



CHAP. II.] 



MONEY. 



129 



is believed to be used as money, the balance being in plate 
or other objects of utility and ornament. 

11th, They are nearly inconsumable by use. The use of 
almost all other commodities causes their rapid destruction. 
Articles used as food or clothing, for example, disappear 
entirely in a comparatively short period. Even iron, as 
used for most purposes, — in railroads, agriculture, the me- 
chanic arts, &c, — lasts only a few years. 

With gold and silver it is quite different, though the 
exemption from waste is more remarkable in the case of 
gold. Indeed, its ordinary and principal use can scarcely 
be called consumption, it is so gradual. 

It has been ascertained, from data carefully obtained in 
the Bank of England, that gold in coin loses only 4.16 per 
cent in one hundred years, or about one per cent in twenty- 
five years. 

The following comparison exhibits approximately the 
great difference in this respect between gold and other 
commodities : — 



Potatoes consumed within 

Wheat 

Cotton 

Wool 

Lead 

Iron 

Gold and silver in coin 









average, 


say . . 


11 


n 


11 


n' •' • 


11 
11 


11 

11 • ' 



1 year. 

2 years. 

4 years. 

5 years. 
10 years. 
20 years. 

2400 years. 



Investigations made at the United States Mint, as by Re- 
port of 1862, showed that the wear and tear of gold and 
silver used as coin was only as 1 to 2,400 ; that is, it costs 
but one dollar to keep 2,400 dollars in circulation. Gold 
half-eagles only as 1 to 3,500 per annum. 

When used for gilding and similar purposes, it is much 
more rapidly consumed ; but the amount so employed is 
very small, in comparison with the whole mass. When 
used in plate, the consumption is even less than in coin ; 
and a larger part of that which goes into jewelry returns 

9 



130 EXCHANGE. [BOOK III. 

into bullion in the lapse of time. So that we must esti- 
mate the yearly consumption of gold, in all its uses, exceed- 
ingly small as compared with the annual production. 

COINAGE. 

Having seen how admirably adapted the precious metals 
are for use as money, we pass to a consideration of those 
artificial arrangements by which they are still further and 
more completely fitted for that purpose. 

At first, these metals were used in ingots and bars, and 
passed by weight. Whenever a pecuniary transaction was 
made, scales were required to determine the quantity given 
in exchange. 

This was a clumsy and imperfect mode of payment ; for 
there would arise the question of quality as well as quan- 
tity, — of the pureness or fineness of the metal. This could 
only be ascertained by assay ; and that could be accom- 
plished only by persons having the necessary knowledge of 
metallurgy, with apparatus for conducting the process. 

It was therefore natural, that, at an early period, a con- 
trivance was hit upon which obviated all difficulties. 

The bars, or ingots, designed for money, were first as- 
sayed, and made of one degree of fineness. This degree 
was called the standard. The metal thus assayed was then 
divided into pieces, and the weight carefully ascertained, 
and stamped upon each. These pieces were called coins ; 
the process, coinage. 

As this coinage involved great responsibility, it very 
properly became the duty and prerogative of the govern- 
ment. Each government established an institution for the 
purpose, called a mint. To these mints the people carried 
their gold and silver, and, by paying a very trifling seignior- 
age, had the whole amount returned to them in coin. 

In the United States, one -half of one per cent is now 
exacted ; but in some other countries, no seigniorage is 
charged, the whole being done at the expense of the govern- 






CHAP. III.] CREDIT CUKEENCY. 131 

ment. The policy of this is quite doubtful. Government 
should retain a slight compensation for two reasons : first, 
a benefit has been conferred, for which the recipient should 
pay a fair equivalent : additional value, within the particu- 
lar country, has been given by the additional labor ; gold 
in the national coin being more useful than in bars. Sec- 
ond, because coin should be a slight fraction less valuable 
for mechanical purposes and for export than bullion ; other- 
wise it will be wrought up into jewelry at home or shipped 
abroad, instead of bullion, and thus an unnecessary waste 
in coinage will be the consequence. 

Such is the character of a currency composed entirely of 
money, or that which has value in itself. Of all subjects, 
this is one of the most simple, most free from all complexity 
and mystery. No one can fail to understand it. Govern- 
ment has not the slightest occasion to interfere with or 
regulate it. It obeys certain natural laws, which cannot be 
improved by man. All that government can usefully do is 
to certify to the weight and fineness of the coinage. It has 
no further concern with money. 

The main point to be borne in mind, in relation to coin- 
age, is, that government does not determine the value at 
all, but simply certifies to the weight and purity. 



CHAPTER III. 

II. CREDIT CURRENCY. 

This we have already stated to consist of the promises 
of government to pay money, which, by force of law or the 
necessities of the people, are received as money. It is 
simply the credit of the nation, used as currency. The 
element of value does not enter into it at all. It is pre- 
cisely the opposite of a value currency 



132 EXCHANGE. [BOOK III. 



ITS CHARACTERISTICS. 

Such a currency may transfer debts, but it cannot pay 
them. The creditor may accept the promises of the govern- 
ment in place of that of an individual, but he receives no 
value. So far as issued by the government and accepted 
for taxes and other public dues, such notes are mere coun- 
ters, used for cancelling reciprocal obligations. If such 
notes are issued beyond the natural volume of the currency, 
they can never be kept at par with specie, or circulate at 
their nominal value. Gold, as compared with them, will 
bear a premium, the amount of which will indicate the 
excess and depreciation of the currency, and the want of 
confidence in the promisors. 

This premium is the result of the operation of the laws 
of value ; and no legislation of free government or edict of 
despotism can permanently change it. Governors might as 
well prescribe the height to which the tides of ocean shall 
rise, as to restrict or reduce the premium on gold. 

Such legislation is not only futile, but injurious, pro- 
ducing an effect just opposite to that intended. It disturbs 
the market price of gold, destroys confidence in its actual 
price, and, by exciting distrust, drives the premium far up 
beyond its natural limit. 

The experiment made by the Congress of the United 
States in 1864 showed most conclusively the utter folly of 
attempting to interfere with the laws of value. After the 
" gold bill," so called, became a law, the premium rose at 
once some fifty per cent above its previous rate. The 
unwise act was speedily repealed, and the excessive pre- 
mium it had caused fell off. 

EFFECT OF CREDIT CURRENCY ON PRICES AND INCOMES. 

A general rise of prices follows the introduction of a 
credit currency, because it is always issued in excess of 



CHAP. III.] CKEDIT CURRENCY. 133 

the natural volume of money ; and consequently, as prices 
must, in the average, conform to the quantity of currency, 
they will advance as it is increased. It is quite idle to 
attempt to evade the operation of this law. When the 
Secretary of the United States Treasury endeavored to 
" float " his bonds by the issue of credit currency, he unfor- 
tunately " floated " all the merchandise of the country at 
the same time, so that the rise of prices compelled him to 
pay double for all the government needed ; and hence he lost 
at least one-half of all the bonds that were thus sold. 

The effect on fixed incomes is very marked. From what- 
ever source, fixed incomes are depreciated in value just in 
proportion to the depreciation of the currency. But there 
is one exception in the practical operation of this principle. 
If the income received were to be expended entirely for 
food, clothing, and other ordinary articles of merchandise, 
the full depreciation of the currency would be felt. But 
if, as would usually be the case, a portion of it were used 
for the payment of rent, the depreciation, in so far, would 
be less operative. Neither the fee nor the use of real 
estate rises in proportion to other things. 

The price of real estate, and its use, would, however, 
unquestionably advance to nearly the same extent as com- 
modities in general, provided a credit currency were contin- 
ued as the currency of the country for a long period, say 
from one generation to another. This, however, never has, 
and, in the nature of the case, is not likely to take place ; 
credit currency being, necessarily, of limited duration. 

Doubtless, investments have been made, especially in 
large cities, that would not have been made but for the 
great inflation in the currency of the United States during 
the Rebellion ; but the price of such property has advanced 
slowly, as compared with flour, clothing, &c* 

* That real estate in some large cities has much advanced, we are well 
aware ; but, take the whole country through, it is doubtful if there has been 
an advance of ten per cent. Indeed, none is visible in the country generally. 



134 EXCHANGE. [BOOK III. 

A house iu New York, worth twenty thousand dollars in 
1859, was not worth fifty thousand dollars in 1864 ; but 
twenty thousand dollars' worth of flour, at prices of 1859, 
would have brought fifty thousand dollars in 1864. Why 
is this ? Because everybody believes that prices have not 
permanently advanced, but will before many years, perhaps 
before many months, decline. Therefore permanent invest- 
ments will not be made at prices corresponding to those of 
ordinary merchandise. This difference between real estate 
and consumable commodities, as influenced by the expan- 
sions and contractions of the currency, should be borne in 
mind, as it will explain phenomena that will be presented in 
our further inquiries.- 

EFFECT ON CONTRACTS. 

A credit currency, it may be safely assumed, is always 
redundant ; and, as such, its effect on contracts is twofold. 
Obligations to pay money made with a specie standard, and 
paid with credit currency, will impose a loss of value on the 
creditor equal to the depreciation of the currency. Great 
injustice and suffering resulted from this cause during the 
progress of the American wars of the Revolution and of 
the Rebellion. 

On the other hand, contracts made to pay money during 
the existence of a credit currency, but which mature and 
are discharged under a value currency, will subject the 
debtor to the loss of all the difference in the value of the 
two currencies. Great injustice and suffering resulted from 
this source, on the recognition of American independence, 
in the last century, among the first of which may be reck- 
oned the Shay's Rebellion of Massachusetts. At what time, 
and with what results, the return to specie payments at the 
present period will next be made, it is yet impossible to 
predict. 

Historically, it is found to be true, that a credit currency 
has never yet been kept within the natural limit of the 






CHAP. III.] CREDIT CURRENCY. 135 

value currency of the country in which it was established. 
The "continental money" of the American Revolution; the 
assignats of the French Revolution ; the bank money of« 
England during the Napoleonic wars ; and, lastly, the green- 
backs, or treasury notes, issued during the late Rebellion, 
and the present paper currency of Russia, are illustrations 
in point*. 

The French assignats were issued in such excess that 
their utter repudiation by the government became a neces- 
sity. So of the " mandates " which followed them. The 
" continental money " became entirely worthless. The notes 
of the British Bank, which depreciated during the great 
struggle with France, were finally restored to par at the 
cost of immense suffering and loss to the commercial and 
business classes. 

The paper issues of the American government will, 
doubtless, be paid ; but it will be at an incalculable amount 
of bankruptcy and ruin to those who are greatly indebted. 

The treasury notes, now acting as currency, will be 
redeemed ultimately ; that is, be taken in for taxes and other 
dues to government, and thus annihilated. They could not 
be paid in coin, but are sufficiently certain to be cancelled 
in the way just indicated. 

A credit currency never has been regulated in such a 
manner as to keep it on a par with specie, and probably 
never will be. The necessities of government are so press- 
ing that the temptation to increase the amount becomes too 
great for resistance. As prices rise in consequence, the 
currency becomes of less and less value, that is, has a 
decreasing power in exchange, so that the inducement to 
issue becomes continually stronger as the volume expands. 
Unless this course can be arrested, final bankruptcy is 
sure. 

But the issue of a legal-tender credit currency is, under 
any circumstances, a great wrong, and can never be justi- 
fied except in the most extreme cases of national peril; 



136 EXCHANGE. [BOOK III. 

and, even in those instances where it has been defended as 
an indispensable measure, events have generally proved it 
to have been a mistaken and short-sighted policy. 

CREDIT CURRENCY A FORCED LOAN. 

When a government issues its notes as currency, and 
makes them a legal tender, or authorizes other parties to do 
so, it creates a forced loan. 

All creditors are compelled to receive these notes for 
whatever may be due to them, which is equivalent to mak- 
ing a loan to the government to the amount so received ; 
and those who sell their property are obliged to take these 
promises, since there is no other currency in use, so that 
the whole amount thus put into circulation becomes a com- 
pulsory loan to the government. 

CREDIT CURRENCY A DIRECT TAX. 

As soon as legal-tender credit notes begin to depreciate 
in value, or, in other words, as soon as commodities rise in 
consequence, each person who receives them pays a tax 
equal to their depreciation while in his possession. For 
example, if he receives a ten-dollar note, which will bring 
him but eight dollars' worth of merchandise at the gold 
price, he has contributed two dollars to the government. 
So, of course, with all who receive notes in payment for 
debts contracted prior to the issue of such currency. 
When, as in the case of the " continental money," these 
notes become utterly worthless, those through whose hands 
they have passed have contributed, at least nominally, the 
whole amount. We say nominally ; for the contribution 
thus forced from the people is not in fact to the full amount 
in actual value. 

For illustration, the government issues one hundred mil- 
lions of its notes at first ; and for this, as prices have not 
been raised, it receives an equal amount in value. It issues 
a second hundred millions ; but prices have advanced in 






CHAP. III.] CREDIT CURRENCY. 137 

consequence of the first issue, we will suppose, fifty per cent, 
so that the government gets but $66,666,666 in value. A 
third issue is made of one hundred millions ; but prices have 
gone up one hundred per cent, and the government gets but 
fifty millions in value. Another issue of one hundred mil- 
lions carries prices up to one hundred and fifty per cent, 
and only forty millions is realized in value. This is not 
intended as a statement of the precise fact, but to exhibit 
the natural operation of such issues. That it is not exag- 
gerated, appears from what is well known, that the United 
States government sold many millions of its bonds for that 
which was equivalent to but forty per cent in gold. The 
result is shown in the following recapitulation: — 

First $100,000,000, issued at par value, .... $100,000,000 
Second $100,000,000, issued at 33£ per cent dis- 
count 66,666,666 

Third $100,000,000, issued at 50 per cent discount 50,000,000 
Fourth $100,000,000, issued at 60 per cent dis- 
count 40,000,000 

Government receives in value for $400,000,000 

issued $256,666,666 

Loss to the government, or people 143,383,334 

$400,000,000 

The people must finally pay in taxes 1143,333,334 more 
than the government received in value, if the debt is paid ; 
but, if it should be repudiated, the loss of actual value to 
the people would be but $256,666,666, the balance being 
merely the enhanced prices they have received for commod- 
ities furnished. But, unfortunately, those who received the 
extra prices and those who will lose by repudiation may 
not be the same identical persons. 

The foregoing illustration shows the operation or general 
result upon the community of a credit currency as a direct 
tax : but the effects upon different individuals are diversified 
in every possible manner ; one man Josing, another gaining 
by it, according to the position in which the parties are 



138 EXCHANGE. [BOOK III. 

found at the time they were compelled to accept such a cur- 
rency instead of money. The laws of value having been 
violated, universal chaos in all monetary affairs is the inevi- 
table consequence. 

The final result of the issue of an inconvertible currency, 
then, is, that, if it is never redeemed, the taxation it imposes 
is most unequally and unjustly distributed ; if it is finally 
paid, then the taxation is not only unfairly distributed, but 
the amount vastly increased, since the expenditures of the 
government have been largely enhanced by it. It does not 
admit of question that a large part of the debt of the 
United States represents expenditures made solely to meet 
the excessive prices caused by a credit currency, especially 
in the years 1863-5, when the premium on gold averaged 
nearly seventy per cent, and for a considerable period, 
when the heaviest expenditures were made, as high as one 
hundred and fifty. Of course, the taxation of the country 
will be correspondingly increased for the payment of this 
excess. 



CHAPTER IV. 

III. MIXED CURRENCY. 

Mixed currency is a modern invention, as yet known 
only to a small part of the human race, and but partially 
understood even in those countries into which it has been 
introduced. 

The Bank of England, the parent of all mixed-currency 
institutions throughout the world, was established in 1694 ; 
but its operations were so limited, and its influence so par- 
tially felt, during the first century of its existence, that the 
character of the currency it issued was hardly appreciated. 
This bank made a grand suspension in 1796, and continued 
in that state for over twenty-three years. This was the 



CHAP. IV.] MIXED CURRENCY. 139 

first occurrence* which demonstrated practically the true 
nature of this kind of currency. 

If we carefully observe the composition of a mixed cur- 
rency, we shall find it to consist of promissory notes issued 
by individuals or corporations legally authorized to do so, in 
excess of the actual specie held for their redemption. 
These notes form the circulation or currency, and consist 
wholly of paper ; yet, as they profess to be convertible, they 
have the same power in exchange as the specie itself, so 
long as confidence in the ability and integrity of the promi- 
sors remains unimpaired. 

This is rightfully called a mixed currency, because it is, in 
fact, composed in part of value and in part of credit. So 
far as specie is held for the payment of these notes, this 
kind of currency is actually convertible, and equivalent to 
money ; but, in so far as the credit element exceeds the 
specie, it is only a promise to pay money, and is inconverti- 
ble. A mixed currency, therefore, can only be regarded as 
partially convertible ; the degree of its convertibility depend- 
ing upon the proportion the specie bears to the notes issued 
and the deposits. It is this proportion of specie, whatever 
it may be, which determines the quality of this kind of 
bank-note circulation. Its quality is the great question of 
interest to all who use this kind of currency ; and of that 
we propose now to speak. 

THE QUALITY OP A MIXED CURRENCY. 

This is by far the most important matter in relation to a 
mixed currency. What is the proportion of specie held for 
its conversion ? To ascertain this, we must know, on the 
one hand, the amount of notes in circulation, and the in- 
scribed credits, that is, the deposits ; and, on the other, the 
amount of specie in bank. We have naught to do with any 
other inquiry, so far as the quality of the currency is con- 

* The bank suspended for two years, very shortly after its organization ; 
but its capital and operations were then too limited to occasion much notice. 



140 EXCHANGE. [BOOK III. 

cerned. We have no occasion to make such an inquiry in 
regard to money, for that was value in itself, and needs no 
conversion ; nor in relation to a purely credit currency, for 
that does not profess convertibility : but a mixed currency, 
to be reliable and beneficial to the public, must be what it 
proclaims itself to be ; viz., convertible on demand into coin; 
and therefore a sufficiency of coin should be held to secure 
that object. 

And here it is necessary to distinguish carefully between 
the convertibility and the redeemableness of a currency. 
The first may be uncertain or impossible, while the last 
may be sure. A bank may be perfectly solvent, while its 
currency is almost entirely inconvertible. By convertibility, 
then, we understand the power of the bank to exchange 
its promises for specie on demand ; by redeemableness, its 
power to liquidate or discharge its obligations some time or 
other, by the resources it may possess for ultimate payment. 

For example, a bank has promised to pay one hundred 
thousand dollars in specie, while it has only ten thousand 
dollars in specie to pay with. The same bank has demands 
against individuals, for their notes discounted, to the 
amount of two hundred thousand dollars. Now, it is cer- 
tain that this bank can convert only ten thousand dollars of 
its bills ; but it can, if sufficient time is allowed, redeem the 
whole amount, by taking in its own notes in exchange for 
those of its debtors. The power of the bank ultimately to 
redeem or cancel its notes is amply sufficient ; though, for 
the conversion of them into specie, it has the ability only 
to the extent of one-tenth. This point needs to be well 
understood and remembered, because, as we shall have 
occasion to show, the difference between the redemption and 
conversion of a currency is a matter of the utmost impor- 
tance to the business world, and the former cannot be made 
a sufficient substitute for the latter. This is evident from 
the following consideration. 

A bank-note converted into coin, the money still exists 



CHAP. IV.] MIXED CURRENCY. 141 

in circulation : a bank-note, redeemed by receiving it for 
indebtedness to the bank, is taken out of circulation ; that 
is, it ceases to be currency, and, for the time being, is prac- 
tically annihilated. The circulating medium of the country 
is diminished to that extent. 

To illustrate this point, and show how much depends 
upon the quality or convertibility of a mixed currency, we 
propose to take that of the United States as an example. 

In doing this, it will be indispensable that we refer to the 
statistics of banking institutions, and use the terms com- 
monly employed by them ; and therefore we now proceed to 
define them. 

LIABILITIES OP A MIXED-CURRENCY BANK. 

1. Capital Stock. — This is the sum total of all the 
amount paid into the bank, to constitute its means of 
doing business. 

2. Circulation. — This consists of notes of the bank, of 
different denominations, payable on demand, signed by its 
officers, and issued to circulate as money. 

3. Deposits. — These include all sums, from whatever 
source, that stand on the books of the banks to the credit 
of individuals. They are properly called inscribed credits : 
they are nothing more or less. They are all legally payable 
on demand, in specie, to those persons in whose names they 
stand. 

A more full description of their nature and effects will 
be given hereafter. 4 

Bank Balances. — " Due to other banks " and " due from 
other banks " are terms used in the official returns made to 
the Treasury Department of the United States. 

They explain themselves. Banks, like individuals, have 
open accounts with each other. These, in the aggregate, 
must balance each other ; but there is often a considerable 
apparent difference, arising from the fact that large sums 
are constantly in transitu. 



142 EXCHANGE. [BOOK III. 

As affecting the character of a mixed currency, these 
balances are an important item, because they form the most 
explosive and dangerous element. They are " deposits " in 
their nature, certain to be drawn in any sudden emergency. 
This was strikingly illustrated in the autumn of 1857. At 
that time, the banks in the city of New York owed some 
sixty millions of dollars which had been left with them by 
distant banks in order to meet their own liabilities. When 
the pressure came on, in September and October of the year 
mentioned, these banks began, of necessity, to call in their 
balances. 

This placed the New- York banks in a position of great 
difficulty. To answer these calls would require a large part 
of all their means ; while, at the same moment, the mer- 
chants and business men of the city needed all the resources 
they could command. But the banks must meet the drafts 
made for their balances, or suspend at once ; and, accord- 
ingly, were compelled to cut off all discounts, or loans, to their 
regular customers. This state of things could not be long 
endured ; and the merchants of the city, being soon driven 
to desperation, began to draw upon their own deposits for 
specie ; and thus a general suspension took place, not only 
in the commercial metropolis, but through the country. 

These balances, as they exist extensively in all great 
cities, form the train that ignites the magazine, and causes 
an instant and general explosion. 

The Bank of England was compelled, in 184T, to obtain a 
suspension of the act of 1844, by the threat of the banking 
houses to withdraw their balances, and again in 1857. 

Other Liabilities. — These consist of various obligations, 
which banks incur in the course of their transactions with 
the public and each other. They are not large in the 
aggregate, as compared with their aggregate liabilities, but 
must be taken into the account. They may be immediate 
or remote liabilities, but are mostly immediate. 



CHAP. IV.] MIXED CURRENCY. 143 



RESOURCES OF A MIXED-CURRENCY BANK. 

Loans. — This item includes the sum total due the bank 
from its customers for discount and advances, and for 
which the banks hold notes or other obligations, payable at 
some future time ; say, from one day to four or six months, 
as the case may be. 

Stocks. — Banks are large purchasers of the various State 
and national stocks, and also those of towns, cities, rail- 
road companies, &c. The whole amount so held is included 
in the term " stocks." 

Heal Estate. — A place of business being indispensable to 
the operations of banking, buildings are erected for such 
purposes. These, being often beyond the needs of the bank, 
are rented in part. 

Other Investments. — A' general term that includes all 
kinds of property the bank may hold, from necessity or 
choice, not embraced in any preceding title. 

Notes of other Banks. — As banks, in the course of busi- 
ness, are constantly receiving each other's notes, they must 
necessarily have, in the aggregate, a large amount, which 
appear among their assets. Notes thus held in no essen- 
tial particular affect the general character of the currency : 
they only concern the relations of the banks to each other. 
In their nature, they do not differ from other notes in circu- 
lation : they are held by corporations, instead of individuals. 
They would not assist a bank in meeting immediate de- 
mands, as they are not legal tender. 

Cash Items. — Many banks have the practice of reckoning 
certain assets they hold as equivalent to cash, and class 
them as " cash items " in their returns. For example, a 
bank may hold a check upon another bank for a given sum, 
which, in its account with that bank, and for many other 
purposes, may be equally available for the time being, with 
money actually in hand. Checks drawn by individuals on 



144 EXCHANGE. [BOOK III. 

other banks, foreign exchange, sight drafts, and the like, 
are often reckoned among these items. But, whatever their 
origin or character, they add in no degree to the strength 
of the currency. They may help the individual bank that 
holds them, as compared with the debtor banks, but not the 
general mass. 

Reserved Profits. — Although no such item appears in the 
returns published by the national government, it is one of 
some importance. In most banks, it is customary to reserve 
a certain sum from the profits of each year, to ensure against 
unexpected losses or contingencies. In some cases, this 
reserve is large ; in others, small. In Massachusetts, in 
1863, the amount so reserved was nearly five millions, equal 
to eight per cent on the capital. Tnis, while it does not in 
any way change the character of the currency, gives the 
bank greater ability to make "loans. It is, for the time 
being, an increase of banking capital. It adds nothing to 
the convertibility of current notes. 

With this explanation of the terms employed, we proceed 
to give such statistics of the banks of the United States as 
shall exhibit the character of the currency they issue. 

The first point to be noticed is the aggregate capital of 
these banks, which we find to be $421,880,095, on the 1st 
of January, 1860. We have selected that point of time, be- 
cause the country was then undisturbed, and the currency 
in its natural condition. This capital, as we have already 
explained, is the amount which the banks have at their com- 
mand, and which it is their business to loan out to the pub- 
lic ; and, let it be recollected, this is all which they can loan, 
except their own credit, issued in the form of bank-notes, 
or inscribed in their books as " deposits," in exchange for 
the notes of individuals or business firms and corporations. 

The next point to be noticed is the aggregate of all the 
assets or property of these banks ; and by ascertaining this, 
and subtracting therefrom the capital, as before stated, we 
shall find to what extent the banks have loaned their credit, 



CHAP. IV.] MIXED CURRENCY. 145 

and, of course, to what extent credit enters into the cur- 
rency. The statistics which show this, present the following 
result : — 

The entire property in possession of the banks, at 

this time, was $887,789,762 

From which deduct the aggregate capital . . . 421,880,095 

Total credit issued by the banks $465,909,667 

On this amount the banks were receiving interest, or in- 
come beyond that received for their actual capital. 
This " total credit " issued by the banks was — 

Its circulation $207,102,447 

Deposits 253,802,129 

Total currency $460,904,576 

It will be observed, that the " total credit " does not ex- 
actly correspond with the " total currency." This may be 
accounted for by the consideration that the item of " reserved 
profits," though given in the returns of some of the State 
banks, are not noticed in the returns made to the general 
government ; so that, as those " profits " increase the actual 
capital of the banks, some unimportant discrepancies may 
be found in the accounts. 

This remarkable difference, then, between the capital of 
the banks and their property in possession, is the first thing 
to be noticed in regard to the mixed-currency system, be- 
cause it shows how it is that large profits may be made upon 
mixed-currency banking. Interest is obtained upon twice 
the amount of actual capital. This income, however, is 
not uniformly distributed among the banks acting under the 
system. Some obtain more ; others, less. 

We also see why it is that such banks must be constantly 
desirous of increasing their loans, by issuing their own credit 
in the shape of circulation and deposits. The more they 
can get out, the larger the income. This is the motive power 
that ensures the constant expansion of a mixed currency to 

10 



146 EXCHANGE. [BOOK in. 

its highest possible limit. The banks will always increase 
their indebtedness when they can, and only contract it when 
they must. 

These facts show, too, why a mixed currency exists at 
all : viz., because those who create it make a profit both on 
their capital and credit, and as much on the latter as the 
former. 

But still another view of the currency is necessary, to 
show the preponderance of the credit over the value element 
in the actual currency: — 

I860! Circulation, as before $207,102,177 

Deposits . . . . " 253,802,129 

Whole currency $460,904,606 

Specie, or value 83,594,587 

Pure credit $377,310,069 

This will give eighteen cents and one mill on the dollar 
as the value element, and eighty-one cents and nine mills as 
the credit element, in the entire currency; credit being to 
value as more than five to one. 

But yet another view of the system is necessary, if we 
would understand the true position of the banks in relation 
to each other, in case of an actual demand for specie, occa- 
sioned by want of confidence or demand for exportation. 

Immediate liabilities of the banks of the United Slates, 
I860: — 

Circulation $207,102,477 

Deposits 253,802.129 

Due other banks 55,932,918 

O^er liabilities . _i±^I^5 3M99>339 

Immediate resources : — 

Specie $83,594,537 

Cash items 19.331,521 

Notes of other banks '. 25,502,567 

Due by other hanks 67,235,457 19566108g 

Excess of immediate liabilities over immediate re- 

, sources $335,735,257 



CHAP. IV.] MIXED CURRENCY. 147 

From this statement we perceive the real position of the 
banks in regard to the convertibility of their currency. They 
owed on demand 1035,735,257, which they had no imme- 
diate means in their possession to meet ; but they held the 
following assets, or ultimate resources : — 

Loans $691,945,580 

Stocks 70,344,343 

Real estate 30,782,131 

Other investments . • 11,123,171 

Total $804,195,225 

After deducting the excess of immediate liabilities, 

as above 335,735,257 

Surplus $468,459,968 

This would seem a sufficiently large margin to guarantee 
the ultimate redemption of the bank currency ; but does it 
secure its immediate convertibility ? That is the point ; 
and the answer must depend upon the question, whether 
the banks can realize from their assets (loans mainly) as 
fast as the redemption of their deposits and notes may be 
called for. If not, they must suspend. Their loans are on 
time, from one day to six months ahead, and therefore may 
not be actually due, so fast as the necessities of the banks 
may require ; but, even if they should mature fast enough, 
the practical question would still arise, whether, if the banks 
take in their notes and refuse to put them out again, and 
decline to make their usual loans, as in the emergency of a 
large demand for specie they certainly must, how will it be 
possible for the debtors of the banks to meet their pay- 
ments ? If the banks could stop their loans just when they 
pleased, they might perhaps save themselves from dishonor : 
but they cannot do this, because, unless they continue to 
make discounts, their customers will certainly fail, since 
they rely upon discounts to meet their obligations as they 
become due. 



148 EXCHANGE. [BOOK III 

CHAPTER V. 

ANALYSIS OF DEPOSITS. 

Our analysis of mixed currency will be far from complete, 
if we do not give a full description of the origin and charac- 
ter of deposits, as forming an element most dangerous to such 
a currency, and generally very mysterious in the popular 
understanding. 

In the currency of the United States, deposits constitute 
the largest item, considerably exceeding the circulation. 

The nature of these deposits has, until within a very few 
years, been a matter of serious disagreement amongst those 
who ought to be well acquainted with their nature and 
effects. To present the subject in such a light that it shall 
be clearly understood, we must carefully examine it in all its 
details. 

First, What are deposits ? We have already defined 
them as credits given to individuals in the books of the 
banks, for which they are authorized by law to demand 
the specie. They indicate what the banks owe on account. 

Secondly, How do they arise ? In various ways. 

1. A customer may deposit coin, and have the amount 
passed to his credit. The proportion thus deposited is infi- 
nitesimally small, compared with the aggregate deposits. 

2. He may deposit checks, drawn by himself or others, 
on other banks. 

3. He may deposit the notes of the same or other banks. 

4. He may deposit the notes of individuals, or bills of 
exchange running to maturity ; and, when they are collected, 
the amount will be passed to his credit. 

5. The customer may get his own notes, or the notes of 
others, discounted at the bank, and the amount is passed to 
his credit ; and this last is the origin of the greater part of 
all deposits. 



CHAP. V.] MIXED CURRENCY. 149 

Of these different kinds of deposits, it will be observed 
that only one, and that a small one, was in specie ; and yet 
the bank has promised to pay specie on demand alike for 
all. But it must be observed, that, while all these stand 
legally on the same basis, as a matter of fact they are 
practically held by the banks upon different conditions, 
expressed or implied. They may be divided into three 
kinds : — 

First, Permanent or compulsory deposits, made by busi- 
ness men wishing for bank accommodations, in order to 
secure larger loans. 

Second, Fiduciary or trust deposits, made wholly for 
temporary safe keeping, by executors, guardians, treasu- 
rers of corporations, &c, who are receiving funds to be paid 
out, or invested at a future period. 

Third, Active deposits, made by business men, to be 
withdrawn to meet their current payments. 

It will be necessary to explain these different deposits. 
The permanent or compulsory deposits are not used at 
all by those who make them. They are made with the tacit 
understanding that they are to remain in the bank, and not 
be drawn upon. They are made to secure favors from the 
bank, and in order to show a " good account." No bank, 
perhaps, compels its customers, by any law or rule, to do 
this ; but custom in such a case is as imperative as law. 
Banks are conducted wholly with reference to profit, and 
the most profitable accounts will secure the most liberal 
discounts. 

These deposits constitute a permanent loan to the banks, 
without interest ; and the banks can loan the same to their 
customers upon interest. It is one of the forms in which a 
bank may secure extra interest in a legal way ; but it is 
done at the expense of those who make the deposits. 

This kind of deposits forms a very dangerous element in 
the mixed-currency system, for the reason, that, when the 
merchants of any great city are driven to desperation, they ' 



150 EXCHANGE. [BOOK Til. 

may demand these deposits in specie, and then the banks 
must suspend. This was done in New York in October, 
1857, as before stated. The merchants saw clearly, that, 
unless the banks would make' discounts, they could not 
meet their engagements. The banks refused to do this, 
because they could not, and continue to pay specie. The 
merchants then, by concerted action, called for their depos- 
its ; and the banks themselves succumbed. 

This will always be re-enacted in a time of great pressure, 
if the mixed-currency system is continued. It is the only 
remedy which the mercantile interest has within its power. 
It is properly used, because the banks have no right to make 
promises which they know perfectly well they cannot keep. 

Another objectionable consideration is, that these deposits 
greatly and unnecessarily enlarge the immediate liabilities 
of the banks, and give them a frightful preponderance over 
the immediate means of payment. This injures the credit 
of the banks in times of pressure. All sagacious financiers 
look with suspicion on institutions owing ten or fifteen dol- 
lars on demand for every dollar they have in their posses- 
sion. On the 29th of August, 1857, the banks of the city 
of New York owed for eighty-four millions for deposits and 
nine millions for circulation, — in all, ninety-three mil- 
lions, — and had but nine millions of specie. 

Here, perhaps, it is proper to remark, that this kind of 
deposits is probably unknown in any other country than the 
United States. In England, for example, the rate of inter- 
est is not arbitrarily fixed by government, but fluctuates 
from time to time, according to the laws of currency and 
the demands of trade. Consequently, there is no occasion 
for this indirect mode of obtaining extra interest, so com- 
mon in some, if not all, the commercial cities of the Ameri- 
can Union. 

Compulsory deposits mean, simply, extra interest; but 
that interest is paid in a manner most burdensome to the 
depositors, and most dangerous to the banks. The former 



CHAP. V.] ANALYSIS OF DEPOSITS. 151 

must lie out of a considerable part of capital which they 
need in their business ; the latter must enlarge their de- 
posits to a most unreasonable extent, and place themselves 
at the mercy of the depositors in any time of severe pres- 
sure or panic. 

Of the second class of deposits, viz. those on trust or for 
safe keeping merely, it may be said, that they are perfectly 
legitimate, and may, to a certain extent, be loaned by the 
banks with safety. They should be so loaned for the advan- 
tage of the public, and thus no capital be left unemployed. 
An obvious benefit arises to all parties : the depositor has 
his money securely kept, the borrower has the use of it, 
and the bank rightfully gets interest upon so much of the 
sum as it has loaned. 

The third class of deposits may be described as follows : — 

(a) A business man, who is making sales each day, will 
receive, in payment, notes of all the different kinds in cir- 
culation. He will also receive checks on different banks. 
All these he will deposit in bank ; and the amount is passed 
to his credit, and becomes a bank deposit. 

(5) He will also receive notes of hand, drafts, and bills 
of exchange, in payment. All these, when nearly due, he 
will deposit in bank ; and, when paid, they are passed to his 
credit. 

(c) Or, if he desires to anticipate the payment of such 
notes, he may ask the bank to deduct the interest (and 
exchange, if there be any), and place the amount to his 
credit ; and this the bank will, in ordinary circumstances, 
be ready to do ; and the amount so passed to the credit of 
the customer will constitute a part of the deposits of the 
bank. 

AEE BANK DEPOSITS CURRENCY? 

Lord Overstone, one of the best authorities, has main- 
tained the negative ; but most writers * in this country take 

* "We do not know of any intelligent writer in this country who now 
denies that deposits are as truly currency as the circulation itself. 



152 EXCHANGE. [BOOK III. 

the affirmative side of the question : indeed, there are, at the 
present time, few, if any, who doubt that deposits are cur- 
rency. The New- York Board of Currency has given its 
verdict unequivocally as follows : " They constitute at this 
time five-sixths of the active currency of this city" See the 
official report of that association for November, 1858. No 
array of authorities, however, but an examination of facts, 
should determine the question. 

Deposits are an instrumentality by which by far the 
greatest amount of values are transferred in commercial 
centres. They discharge debts, purchase commodities, and 
perform all the functions of currency. 

For example, A has a deposit in the Merchants' Bank. 
He purchases of B a bill of sugars, amounting to ten 
thousand dollars, and pays for the same with a check on 
that bank, with which B either draws the notes or specie of 
the bank, or has the check passed to his credit by the bank. 
This transaction has been equivalent to the transfer of ten 
thousand dollars in value from one party to the other. 

If A owed B a note of ten thousand dollars, he might pay 
it in the same way. 

Now, what difference did it make to A whether he had ten 
thousand dollars of bank-notes in his till, or an equal 
amount to his credit in the bank ? Clearly, not the slight- 
est. One was as truly currency as the other. If A was 
pondering the question whether he should purchase the 
sugar for cash (i.e., immediate payment), did not the con- 
sciousness that he had ten thousand dollars to his credit 
in bank operate on his decision precisely to the same 
extent as if he had ten thousand dollars of bank-notes in 
his pocket-book? Undoubtedly. Where, then, is the dif- 
ference ? And, if all this would be true in the case of A, 
then in the case of any one similarly situated ; and therefore 
we must conclude, that deposits are, in their nature and in- 
fluence, of the same character as bank-notes, and, of course, 
are currency. 



CHAP V.] ANALYSIS OP DEPOSITS. 153 

All bankers and business men are well satisfied that 
deposits are even more active by far in transferring values 
than the bank circulation ; that a much greater number of 
exchanges is made with deposits than with an equal amount 
of bank-notes. 

A little reflection will satisfy any one that such is the 
fact. The sum of ten thousand dollars, for example, might 
easily pay in a single day, in ten different transfers by 
checks, a total of one hundred thousand dollars. 

This would not be an extravagant supposition ; but it 
would be quite improbable that bank-notes make ten pay- 
ments in a single day. 

The efficiency of money, or its substitutes, depends greatly 
upon the rapidity with which exchanges are made. John 
Stuart Mill recognizes this principle ; and it is a very obvi- 
ous one. It is on that principle that we see the propriety 
of admitting, that, although the active deposits in bank may 
be less than its notes, yet the greater rapidity with which 
they are used makes the whole amount equivalent in their 
effects to an equal amount of bank-notes. 

The currency of any country is as its quantity multiplied 
by the rapidity of its circulation. This consideration will 
lead us to regard the whole amount of deposits as equal in 
effect to an equal amount of circulation. 

STOCKS AS IMMEDIATE EESOUECES. 

Here it may be proper to explain why we have not placed 
the item of " stocks " held by the banks amongst their im- 
mediate resources. Many persons seem disposed to regard 
them as such. But, so far as the quality and character of 
the currency are concerned, the stocks held by the banks 
do not essentially differ from any" other securities. Sup- 
pose a severe pressure for specie comes on, what can 
they do with them ? Force the sale, and realize the money 
for them ? This cannot be done, of course, at such a 



154 EXCHANGE. [BOOK III. 

time, except at a great sacrifice ; besides, if they do this, 
what will the banks receive for the stocks sold ? Their 
own notes and deposits. There is nothing else in which 
the stocks can be paid for. But if, after having received 
their notes in this way, they refuse again to loan them, 
they contract the currency by so much, and increase the 
pecuniary distress by all that amount ; if they do reloan 
the notes, they have gained no relief to themselves by the 
operation. The great object desired is to relieve the pres- 
sure for money : the sale of the stocks will have the op- 
posite effect. Hence they cannot be regarded as the 
immediate resources. 



CHAPTER VI. 

MIXED CURRENCY. — FLUCTUATIONS IN QUANTITY AND QUALITY. 

We have explained the organization of mixed-currency in- 
stitutions, the character of their operations, the quality and 
form of their issues. We pass now to consider this cur- 
rency in its several relations to the public wealth. Such an 
inquiry will demand great carefulness and impartiality, and 
must necessarily be made in detail. 

We have two grand questions which arise naturally at 
the start: — 

1st, Does it perform satisfactorily the functions of mon- 
ey ? If we answer this inquiry favorably, we have still to 
ask, — 

2d, What, and how great, are its effects on public inter- 
ests, beyond the proper effects of value currency ? 

These questions are so full of interest to all the depart- 
ments of wealth, are so deeply obscured by prejudice and 
misapprehension, and are so especially important at the 
present time, that their discussion will be protracted through 
several chapters. 



CHAP. VI.] MIXED CURRENCY. 155 



1st, DOES A MIXED CURRENCY SATISFACTORILY PERFORM THE 
FUNCTIONS OF MONEY? 

Those functions are as already stated, — to act as a me- 
dium of exchange, and to be a standard of value. 

Does a mixed currency perform them well ? We answer, 
no. The essential quality of such a currency, which unfits 
it to act well as either a standard of value or a medium of 
exchange, is this : — 

IT IS NOT GOVERNED BY THE LAWS OF VALUE. 

It is subject to quite other laws. It varies as to its 
volume and character ; but we do not find that it does this 
out of respect for value. The great principle of value is, 
demand creates supply ; supply satisfies demand. They 
are measured against each other, and are found equal. 
There is no supply which demand does not call for : there is 
no supply which is not enough for demand. And the reason 
for this perfect equality is that value cannot exist without 
labor. The same cause that increases supply, expands de- 
mand to the same proportions : the same cause that restricts 
supply, reduces demand correspondingly. 

A mixed currency is not regulated in this way. In so 
far as it has not value, it is not controlled by the laws of 
value. 

It is put out or taken in by bank managers at their 
pleasure, and for their profit. It is not produced by labor. 
This last fact removes the gravitation which alone can 
secure a currency. It makes it a thing to be blown about 
by every breeze, carried up or carried down with the cur- 
rents, or whirled around in the eddies of trade. It should 
be stable, and not sport for the winds. There should be 
a reason for the putting-out or taking-in of every dollar of 
money ; and that reason should be found in the laws of 
value. 



156 EXCHANGE. [BOOK HI. 

Now, this law controls the expansion or contraction 
of money, or a value currency. If it is increased, as it may 
be in the natural course of commercial %-ansactions, it is 
because actual money has been brought into the country by 
the balance of trade ; but a mixed currency is increased 
by the voluntary and interested action of bank managers, 
without regard to the laws of value, and without the addi- 
tion of a dollar to the real money, or wealth, of the country. 
The increase of money by importation takes place in obe- 
dience to causes that are gradual and appreciable ; and any 
one who watches the course of commerce can anticipate 
its arrival. If it comes in excess, from any unusual source, 
it easily and naturally passes off to other countries, till the 
balance is restored. Real money is like the water of 
the globe, rising and falling by natural laws, and keeping 
its level by its own mobility. If a redundance exists in one 
spot, there is, for that reason, a deficiency somewhere else. 
Where it is, it is less valued ; where it is not, it is the more 
desired ; and the equilibrium is soon restored. No artificial 
appliances or legal enactments are needed to keep true 
money at a level the world over. 

We have found that the quantity of a mixed currency is 
not governed by the laws of value. Do we, then, find that 
it is controlled by accident ? It would be better so, for 
there would be more chances of its coming right. But, 
on the contrary, we find laws positively mischievous sub- 
stituted for the wholesome operation of supply and de- 
mand. 

Firstly, Of expansion. The more that is issued of a 
mixed currency, the more will be wanted. The supply 
does not satisfy the demand: it excites it. Like an un- 
natural stimulus taken into the human system, it creates 
an increasing desire for more ; and the more it is gratified, 
the more insatiable are its cravings. 

There are two reasons for this : one, that, as the currency 
is expanded, prices are raised correspondingly, and more 



CHAP. VI.] MIXED CURRENCY. 157 

currency is demanded to effect the same exchanges ; the 
other, that the speculation inevitably following the rise of 
prices leads to an enormous extension and repetition of in- 
debtedness, which requires, for its discharge, a greatly 
increased amount of the circulating medium. Thus, by 
the action and interaction of these causes, the demand 
for* the issue of this kind of currency is certain to be great- 
est when it is already redundant. All this, of course, is 
quickened and helped by the fact that the manufacturers 
of this currency are ready and eager to crowd upon the 
public all it will take, like a very earnest friend who thrusts 
his purse into your hand before you are quite decided that 
you wish to borrow. 

Secondly, Of contraction. We have seen the forces that 
raise the currency higher and higher. "We have not seen 
that it is done for the public good, or in obedience to a call 
of trade. We might suppose that there would be an 
unending progress in this direction, till any degree of ex- 
pansion should be reached, inasmuch as the law of value 
does not govern a product into which the element of la- 
bor does not enter. It is not, therefore, the expense of 
multiplying it, nor is its increase limited by any consideration 
of utility. If every dollar of credit were called a million 
dollars, it would effect an exchange just as well. The only 
difference would be the work of adding six ciphers in 
accounting. No : the cause that limits the expansion, and 
finally produces contraction, is the liability of the notes 
to be presented for payment in money. 

The occasion for this cause to operate may be almost any 
thing, — a political convulsion, an adverse balance of trade, 
a failure of some large trading or banking company, or an 
unaccountable mood of the popular mind. 

We will take that one which is most common and sensi- 
ble, — an adverse balance of trade. If it be large, the demand 
for specie which it occasions will create a profound sensation 
among the banks. With actual money, there is, under 



158 EXCHANGE. [BOOK III. 

these circumstances, no reason for excitement or alarm : 
ten million dollars of the currency will discharge that 
amount of debt abroad, and the currency at home is re- 
duced but so much. A mixed currency has, in itself, no 
power whatever to satisfy a foreign creditor. If ten million 
dollars are to be paid abroad, it must be taken from the 
specie of the banks ; the basis of the currency is so much 
diminished, and the circulation must be curtailed accord- 
ingly ; that is, notes must be brought in, and not put out 
again till the basis is restored. If the proportion of specie, 
as is the case on an average in this country, is only as 
one to five of notes, then the export of ten million dollars 
abroad must cause a contraction to the extent of fifty mil- 
lion dollars at home. The removal of so much currency, 
and of that very part which circulates most actively, causes 
stringency ; and stringency causes suspicion. Let another 
ten millions be called for out of the specie basis, and 
affairs will become very critical. The legitimate effect of 
the export, so far, would be to contract the currency one 
hundred million dollars ; but another cause is introduced 
now. Vague apprehensions abound, everybody gets prudent, 
many are scared. Here is another reason for contraction. 
With a value currency, the fact that it was especially 
wanted would be a reason why it should stay. Not so with 
credit money : it won't bear to be looked in the face. 

It is hardly necessary to trace the course of contractions, 
they are so familiar to the American mind. 

The banks know their own position better than any one 
else. They understand precisely what they must do. They 
act instantaneously. They curtail their loans. They know 
that trouble is at hand, and they propose to meet it in the 
best way for themselves. They know that their notes may 
now prove their ruin, and they propose to get them out of 
the way as fast as possible. 

There are two classes of banks : — 

1st, Those who transact all their business in an honor- 



CHAP. VI.] MIXED CUREENCY. 159 

able manner, and, so far as the nature of the currency they 
issue will admit, on a secure basis. They are careful not 
to extend their loans beyond their means, and they keep a 
respectable amount of specie. 

2d, Those who get out, and keep out, all they can, and 
carry their circulation, deposits, and loans as high as pos- 
sible, without regard to the specie in their vaults. This 
class is numerous, especially among those of small capital. 
They rely on their baseless circulation for extraordinary 
profits. 

In case of a demand for specie, the latter class are obliged 
to call for assistance from the former, who, willing or un- 
willing, are equally obliged to give it. The " feeble banks " 
must be sustained, or the whole system will be suspected. 
If these be allowed to dishonor their notes, a run will be 
made at once on all the rest ; and, having as we see only 
one dollar in five to pay with, they must, of course, soon 
stop paying altogether. 

It should be borne in mind that these contractions and 
expansions are not imaginary, not possible only, not merely 
occasional, nor at all local, but occur frequently and every- 
where within the field of such a currency. 

It is commonly said that the banks only increase their 
issues as demanded by the wants of trade ; that they extend 
their credits, because the public require them as business 
facilities. 

If this were true, it would be of no consequence in the 
discussion; because, the laws of value having been dis- 
turbed in this matter, the demand is no longer normal. 
"We have no longer the assurance that trade will call into 
use just that amount of currency which it needs. 

But it is not true. The movement always commences 
with the banks. When, by a monetary revulsion, their 
circulation and deposits have been reduced so low that 
they feel safe in commencing another expansion, the panic 
being over, the banks. begin to offer extraordinary induce- 



160 EXCHANGE. [BOOK III. 

merits to their customers to borrow money. They will 
discount all good paper offered, even if it has a long time 
to run. It is not uncommon, at such times, to solicit the 
privilege of making loans.* As soon as this state of things 
takes place, all business men begin speculative operations; 
for prices have begun to rise. Speculation will give a still 
greater rise to prices, and cause a still greater demand for 
currency. The expansive force is now in full operation, 
and is sure to increase in power till by revulsion the 
equilibrium is restored. 

But it may be asked, are there not natural tides in busi- 
ness, irrespective of a mixed currency ? Certainly ; but 
they are never aggravated or intensified until they end in 
panic or ruin. They are calculable and healthful. They are 
tests of business character. They may go to the extent of 
exposing the emptiness of bad concerns, but never destroy 
those that are good. When they occur, money will be 
wanted to pay debts ; but, when one debt is paid, there is 
just as much money as before with which to pay others. 
The pressure does not annihilate any part of the cur- 
rency. The party who receives a payment does not put 
the money away in vaults, not to appear again till the crisis 
is past. The means of payment can be reduced only by 
the amount actually sent out of the country. Gold and 
silver are as little injured by panic as by fire. 



CHAPTER VII. 

TABLES AND DIAGRAMS OP MIXED-CURRENCY FLUCTUATIONS. 

"We have shown, from the reason of the case, that a mixed 
currency is not governed by the laws of value ; and that 
therefore its variations are controlled by other principles, 

* This is within the personal knowledge of the writer as a bank director. 



CHAP. YII.] 



TABLES AND DIAGRAMS. 



161 



which give no guaranty to the public good, but, on the 
contrary, threaten great mischief to the community, both 
by expansion and contraction. 

"We now propose to show, by facts taken from official 
statistics, that such fluctuations are frequent and violent. 

We introduce a diagram, carefully prepared, for the pur- 
pose of showing, in the most compact and striking form, 
these fluctuations of the currency, both in quantity and 
quality. 

The following table exhibits the fluctuations in the ab- 
solute quantity of the mixed currency (circulation and 
deposit) of the United States from 1834 to 1859 inclusive, 
a period of twenty-six years. 





Table I. 




1834 . . 


. . 170,000,000 


1847 . . 


. . 197,000,000 


1835 .. . 


. . 186,000,000 


1848 . . 


. . 231,000,000 


1836 . . 


. . 255,000,000 


1849 . . 


. . 205,000,000 


1837 . . 


. 276,000,000 


1850 . . 


. 240,000,000 


1838 . . 


. 200,000,000 


1851 . . 


. 284,000,000 


1839 . . 


. 225,000,000 


1852 . . . 


. 328,000,000 


1840 . . 


. 182,000,000 


1853 . . 


. 348,000,000 


1841 . . 


. 172,000,000 


1854 . . . 


. 392,000,000 


1842 . . 


. 146,000,000 


1855 . . . 


. 377,000,000 


1843 . . 


. 114,000,000 


1856 . . 


. 408,000,000 


1844 . . 


. 159,000,000 


1857 . . 


. 445,000,000 


1845 . . . 


. 177,000,000 


1858 . . . 


. 341,000,000 


1846 . . . 


. 202,000,000 


1859 . . . 


. 452,000,000 



These facts are collected, as nearly as possible, from the 
returns made at the beginning of the years mentioned. 
Therefore the contractions or expansions made during a 
year do not appear till the return of the next year. For 
example, the great contractions of 1837 and 1857, beginning 
several months after January, do not exhibit their effects 
till the currency returns of the years 1838 and 1858. 

11 



162 



EXCHANGE. 



[BOOK III. 



Diagram No. 1 exhibits the fluctuations in the currency 
(circulation and deposits), and also the proportion of specie, 
from 1834 to 1859 inclusive, both reckoned per capita. 

The upper lino indicates the currency, the lower the 
specie, and show the fluctuations of both. 

The annexed diagram shows distinctly the actual fluctua- 
tions in the currency, because its amount, at the several 
periods, is reckoned per capita. This is a far more correct 
mode of getting at the real changes than taking the absolute 
quantity. 

The diagram is prepared from a table published by the 
Massachusetts Bank Commissioners, in their Report of 1861, 
furnished by J. V. Yatman, Esq., of New York, to whom 
the public arc indebted for valuable contributions of a sta- 
tistical character. 

The upper line shows the fluctuations in the quantity of 
the currency: the lower line indicates its quality from time 
to time. 

The following table shows the extreme fluctuations in the 
quantity of the currency of the United States per capita, at 
different times, with the corresponding variations per cent 
in its quality : — 



Table II., showing the Extreme Fluctuations in the Currency of the United States 
per Capita at different Times, with the Corresponding Variations in its Quality, or 
the Proportion of Specie held for its Redemption. 



Years. 


Currency 
per capita* 


Fluctuations. 


Per 
cent. 


Quality, or specie 
to circulation. 


Variations in quality. 


Per 

cent. 


1834 
*1837 
1840 
1843 
1846 
1849 
1852 
1855 
*1857 
1858 
1859 


11.82 

17.61 

10.70 

6.18 

9.94 

9.18 

13.31 

13.93 

15.50 

11.55 

14.90 


Expansion 

Contraction 

Expansion 

Contraction 

Expansion 

» 

Contraction 
Expansion 


50 
39 
42 
61 
7 
45 
13 
11 
26 
23 


15J to 100 
13£ to 100 
18 to 100 
29 to 100 
21 to 100 
21 to 100 
15i to 100 
14 to 100 
13 to 100 
22i to 100 
23 to 100 


Depreciation 
Improvement 

Depreciation 

Stationary 

Depreciation 

>) 

Improvement 


33 
61 
36 


27 
10 

7 
73 

2 



* Years when the hanks suspended. Observe the great expansion between 
the years 1834 and 1837 of some fifty per cent; and between 1849 and 1867 
of some seventy per cent. 



DIAGRAM N*l 



*16 

45 

-U 

-11 j 
40 
"9. 
«8_ 

-1 



1833 



S/icni/H/ the fluclualicn of the currency 

or" the United- Stales 

"/•// //•/" proporiicn of specie It 
Circulation et7ts/ Deposits. 



^t-P 



Circulation, and ffepcwls per Capita. 



Per- 
Capita 

$17 



-16 
-15 

-13 



-11 
-10 
« 9_ 
J_«8_ 



7 




-6 

4 
3_ 



Specie per Capita. 



CEAP. VII.] 



TABLES AND DIAGRAMS. 



163 



Table OT. — The following Table exhibits the Composition of the Mixed Currencies 
of the several States of the Union, Jan. 1, 1860; that is, the Percentage of Specie to 
the Circulation and Deposits in the Currency of each State : — 









Per 




cent. 






Missouri . . 






37. 


Georgia . . 






23.7 


Kentucky . . 






23.4 


Tennessee . . 






23. 


North Carolina 






22.08 








22.3 


Alabama . . 






22.2 


Maryland . . 






21.4 



Pennsylvania 
Iowa . . . 
Virginia . . 
New York . 
South Carolina 
Ohio . . . 
Massachusetts 
Florida . . 
Maine . . . 



21.3 

20. 

16.7 

15.6 

15.5 

15.2 

15.1 

10.5 

10. 



Delaware . . 
New Jersey . 
Connecticut . 
Rhode Island 
New Hampshire 
Wisconsin 
Vermont . 
Michigan . 
Illinois 



9.9 

8.9 

7.5 

6.3 

5.7 

5.5 

4.2 

4. 

2.3 



But there are variations, not only in the general currency 
of the United States, such as we have indicated, but also in 
the currency of each State, at different periods. 

We take that of Massachusetts, in illustration : — 

Table IV., exhibiting the Quality of the Currency of Massachusetts. 





1835. 


1837. 


1840. 


1843. 


1851. 


1857. 


1859. 


1860. 


Specie, per cent . . 


7.1 


8 


18| 


44.1 


7.5 


8.9 


14.6 


15.1 



From this it appears that the highest proportion of specie 
was in 1843, which year marked the termination of the 
great monetary convulsion that commenced with the failure 
of the banks in 1837, at which date the banks of Massachu- 
setts had but eight per cent, as shown above. The severe 
pressure began in 1836, when the specie was seven. 

By a law of that Commonwealth, passed in 1858, the 
banks are required to keep at least fifteen per cent of spe- 
cie. This law has much increased the average amount of 
specie. 

Another fact may be noticed in this connection ; viz., that 
the banks of Massachusetts were, to a considerable extent, 
responsible for all the mixed-currency circulation in New 
England, because the banks of the neighboring States had 
all their bills redeemed in Boston. Those of Vermont, for 
example, whose average specie is only four or five per cent, 
kept bank balances (not actual specie, as often supposed) 



104 EXCHANGE. [BOOK III. 

with certain banks which were under obligations to redeem 
all their bills as fast as presented. This, of course, greatly 
enhanced the responsibilities of the Massachusetts banks, 
and decreased the strength of their currency. 

The currency of New England was thus made a complete 
unit. The system of redemption, first established by the 
Suffolk Bank of Boston about forty years ago, was so per- 
fected, that, while the banks of each State might act inde- 
pendently, they were bound together by a common tie, and 
involved in a common fate. This was known as the " Suf- 
folk-Bank system." 

Volumes of statistics might be given of the same general 
character ; but these, it is presumed, are sufficient to show 
the fluctuating character of the mixed currency of the United 
States, both in quantity and quality ; and of course, in de- 
gree, of all other countries where such a currency exists: 
for it is, at all times and everywhere, the same in its gen- 
eral characteristics. The quality may and does vary greatly 
in different communities, as we have seen it in the different 
States of the American Union. But this is merely a ques- 
tion of degree. 



CHAPTER VIII. 

MIXED CURRENCY AS A MEDIUM OF EXCHANGE. 

Having shown that a mixed currency is certain to expand 
and contract, without reference to the healthful and harmo- 
nious provisions of value, and to a degree more extreme and 
dangerous than a currency composed of real money, we are 
prepared to answer summarily the principal question. 

Does a mixed currency perform satisfactorily the functions 
of money ? 

1st, Does it act efficiently as a medium of exchange ? 

Currency, regarded merely as a medium of exchange, may 
be said to perform two offices : (a) To transfer commod- 



CHAP. VIII.] MEDIUM OP EXCHANGE. 165 

ities from one person to another. For this purpose, a 
mixed currency, having a circulation wholly of paper, is 
found to be portable, readily counted, easily carried, safely 
kept, and is, consequently, as convenient as any agent that 
could reasonably be desired. (5) To discharge indebted- 
ness between different parties. For this purpose, the thing 
to be desired is, that currency should be reliable ; that is, 
that there should be nothing in its own nature, which dis- 
qualifies it to act fully, at all times, as a means of discharg- 
ing obligations. 

Coin is always perfectly reliable for the payment of debts. 
When one debt has been discharged by it, the coin is just 
as available and acceptable for the discharge of a second or 
any succeeding debt. If gold and silver are called for by 
foreign obligations, they retain their full power to discharge 
them. 

There can never be a scarcity of them that an earnest demand 
will not create a supply for. If a community wants them 
very much, it will certainly get them. 

They crowd to their best market, as truly as cotton or 
wheat. 

"We here make two principal statements : — 

A foreign demand is the only cause that can take away 
the real money of a people. We have seen that an indefi- 
nite number of causes may take away a currency based, in 
any degree, on credit. 

But, again, a foreign demand can only take away its own 
amount of real money. We have seen that such a cause 
takes away an amount of mixed currency of which the quan- 
tity required abroad is only one factor ; the other factor 
being that number which represents the proportion between 
the bulk of the currency and the specie basis. In these two 
statements are clearly shown the entire unreliability of mixed 
currency to discharge indebtedness. The man who prom- 
ises to }5ay money can never know what may be the demand 
for specie, arising from a want of confidence in the banks, 



166 EXCHANGE. [BOOK III. 

or from a necessity of export ; and, of course, can never be 
safe in giving his notes predicated upon the currency as it 
exists at the time. 

So far as the fluctuations we have shown derange general 
plans of business, distort prices, work injustice to one party 
of every bargain, and tend, by such inequalities and un- 
certainties, to discourage steady enterprise, they do not 
present themselves here for examination. We shall meet 
them, when discussing a mixed currency as performing its 
function as a standard of value. We have to do here, not 
with the unfairness and injustice with which indebtedness is 
discharged under such a currency, but with the difficulty 
or impossibility of discharging it at all. 

To falsify the standard of value is a serious, but not neces- 
sarily a ruinous error. It takes from one unjustly, and 
adds to another ; but it destroys nothing directly. There 
are fluctuations in the currency, found in our national ex- 
perience and depicted in the diagrams given, which proceed 
to an entire revulsion of the body of trade. Panic is not a 
century plant. It blossoms and bears fruit once or twice 
while a child is growing up ; many times while a man re- 
mains in business. 

How does a mixed currency perform the functions of mo- 
ney, so far as discharging indebtedness in such times ? 

Let us suppose the case of the best man in the commu- 
nity. He has, in the legitimate course of business, con- 
tracted obligations, all within the limit of his abilities, now 
coining due. The banks are withdrawing their circulation 
as largely as possible, and do not mean to let it out again. 
The fact of his own excellent standing is of no moment in 
securing discounts ; for there is just as much danger to the 
banks in his having their notes as in their being anywhere 
else. It is the peculiar hardship of good men, in such 
times, that it is not their credit, but the credit (that is, the 
condition) of the banks, which is to decide the question of 
loans. With a value currency, on the other hand, the only 



CHAP. VIII.] MEDIUM OP EXCHANGE. 167 

matter of importance is the solvency of the applicant him- 
self. 

If he cannot get money, he cannot meet his obligations ; 
for he cannot pay in merchandise or real estate. The 
money is not to be had ; that is, if the banks would accom- 
plish what they must do to save their credit. 

Of course, there are individuals and institutions, who, in 
consideration of high premiums and full security, will grant 
accommodations to a limited amount. He may try to get 
along, sacrificing his property to save his name, and paying 
twenty-four or thirty-six per cent for loans. Perhaps, if 
others stood well, he might get through ; but all are not so 
firm as himself. Most have less accumulation and less 
credit. His debtors fail to pay : how can he answer his 
creditors f If he tries to go through, the payments are all 
one way, like the tracks about the lion's den. He has to 
pay both sides of the ledger. 

We have spoken of the credit element of a mixed cur- 
rency. But panic, suspicion, apprehension, are the deadly 
enemies of credit : when these are aroused in the commu- 
nity, it cannot go abroad. Just as nearly as the object can 
be accomplished in the time given, all forms of credit will be 
withdrawn. But this will produce, in its several degrees, 
stringency, distress, panic, ruin. 

Is it, then, too much to say that credit is not reliable for 
the discharge of indebtedness ? 

The element of credit introduces a direct hostility between 
the interests of those who control the currency and those 
who wish to use it. The interest of the one requires that 
the notes shall be withdrawn. The interest, nay, the life, 
of the other requires that they shall be kept in circulation. 
Is there any such hostility in a value currency ? Not at all. 
No matter how intense the apprehension, how manifold the 
suspicion, how frenzied the panic, there is never a moment 
when it is not better for the owner that such money should 
be used than kept out of use. 



168 EXCHANGE. [BOOK in. 

We have said that a sudden and severe contraction is 
necessary whenever any cause threatens the specie basis of 
a mixed currency. Such a contraction deprives the commu- 
nity of the means of meeting obligations undertaken when 
the currency was redundant. 

But this contraction, when it has become inevitable, does 
not take place without danger and loss to the banks them- 
selves ; danger and loss being the proper consequences of 
such operations. The banks make no more loans, or as few 
as possible. The means of discharging debi£ become less 
and less in the community each succeeding day, until the 
rate of interest goes up to two or three per cent a month, 
and money can hardly be had at all. 

The banks now find themselves in this dilemma : if they 
make loans, they must keep paying out their specie. This 
will soon become exhausted, and they must suspend and be 
dishonored. If they do not continue to accommodate their 
customers with the usual means of paying debts, the latter 
must succumb. But, if their customers generally fail, the 
banks will lose their capital (it being chiefly in the form of 
notes given by individuals), and be permanently ruined. 
The history of the country shows on which horn of the 
dilemma they choose to be impaled. They suspend or stop 
specie payments, and then furnish the public with an abun- 
dance of their notes, such as they are. 

After this has been accomplished, and after the credit of 
the banks has been exchanged for the credit of the individ- 
uals who owe them, and after the demand for specie has 
ceased, the banks can resume payments. 

It may be said, at this point, that the result we have 
reached does not seem very formidable ; that, let it but be 
understood the banks are to suspend in such circumstances, 
we can by this means still have the advantages of a mixed 
currency in favorable times, and relieve the distress when 
a contraction is threatened. The answer to this plea will 
be deferred to the chapter on " Fallacies," in preference to 
interrupting the present line of argument. 



CHAP. IX.] STANDAED OF YALUE. 169 

CHAPTER IX. 

MIXED CURRENCY AS A STANDARD OP YALUE. 

2d, Does a mixed currency act justly as a standard of 
value ? 

This function of money is of a very important character. 
It lies at the foundation of all credit and all business calcu- 
lations. If np man dealt with or trusted another, or waited 
a day to receive and consume the reward 'of his labor, there 
would be no great need of such a standard. It would then 
be only of scientific interest, to show what was the compara- 
tive wealth of different communities and ages, and what the 
fairness of their several systems of distributing the result 
of industry among the producing classes. If every act of 
labor received its own reward, in a distinct form, at the 
time, to be consumed then and there, a standard of value 
would be of less practical importance. 

But whenever there is the slightest exchange of com- 
modities or association of laborers ; whenever one man 
trusts another for recompense of service, or applies wealth 
and toil to an enterprise in the faith of receiving a reward at 
a future time, — a standard of value must be had, so that all 
can be done safely, expeditiously, and justly. Unless some- 
thing possessed the property of being a standard of value, 
all exchange would inevitably be confined to the gross and 
clumsy form of barter. It has already been included in the 
definition of money, that it performs this office. There is 
not a possibility of taking a scientific exception to this state- 
ment ; yet a great deal of popular controversy has arisen, 
which we are obliged to stop here to notice. It has been 
said, that a dollar, for example, no more measures the value 
of wheat, than wheat does the value of the dollar ; that 
" the dollar is wholly an arbitrary, conventional standard, 
forced on the people, unjustly, by legislative enactment." 



170 EXCHANGE. [BOOK III. 

Much confusion has undoubtedly been caused by mis- 
taken views of what is really meant by a standard of value. 

Suppose A sells B a tract of land, and agrees to take five 
hundred oxen in payment at a future day. The value of the 
land sold is, in this case, clearly measured by the oxen. 
These latter are the standard by which the value of the 
land is determined. They form the money, or currency, by 
which the debt is legally and rightfully to be discharged. 
The oxen here occupy precisely the position of the dollar 
in ordinary contracts ; and, if we suppose a community in 
which they are altogether used as money, they become, 
without any necessary legal enactment, the universal stand- 
ard, or that by which all other values are measured and 
expressed. Value must be determined in some way ; and it 
can only be done by comparison, — by measuring the land 
against oxen, wheat, gold, or something else that has value. 

As long as the land was measured, in the single instance, 
by the oxen, so long each measured the other alike ; but, 
when the use of the oxen was extended to a comparison 
with each other commodity in the market, and all others 
together, then it became as improper to say that the land 
measured the oxen as to say that the wood or the cloth 
measure the yardstick by which their length and breadth are 
universally determined. The government does not insist 
that length or breadth shall be determined in all bargains 
by the yardstick. Men can and do take arms and fingers 
for the purpose, or any thing else they please : it is nothing 
to government, which only says ivhat a yard shall be. 

So, by universal consent, mankind have agreed to measure 
every thing by the precious metals. The laws of the United 
States, for example, enact that a certain coin, or planchet, 
of gold, nine-tenths fine, and weighing 25-^ grains, shall 
be called a dollar. That is all the government does, all it 
ought to do. It compels no one to receive the dollar for 
any thing, unless he has agreed to do so, any more than it 
compels him to receive hats or boots, wheat or cotton. But, 



CHAP. IX.] STANDABD OF VALUE. 171 

the government having provided the coin, — that is, having 
certified to its weight and fineness, — the people, of their own 
choice, make use of it to measure every other thing. If 
they buy merchandise or land or cattle, they agree to take 
so many of these dollars in payment. They might say, so 
many oxen or horses, or any thing else ; but they prefer 
dollars, merely because they have the most convenient form 
of value, and are universally acceptable. As society in 
general adopts this way of determining the worth of prop- 
erty, the dollar, not by law, but by the voluntary preference 
of the people, becomes the measure, or standard, of value, 
in all transactions. 

So far as indebtedness between individuals is concerned, 
the government makes the dollar lawful tender ; that is, if 
an individual has a just claim for a given number of dollars, 
the government enacts that the same number of dollars shall 
discharge the debt. 

True it is, that every object, having value and used in 
exchange, is really, in so far, and for the time, a measure 
of value ; but that which has been selected by mankind as 
the best adapted for a universal equivalent, and actually so 
used, is emphatically, and for all purposes, the measure 
or standard. 

Some writers have insisted that people should not be 
compelled to pay so many dollars in coin ; then they should 
not promise dollars merely, but any thing else. 

The establishment of such a standard is no wrong to the 
people ; for it can easily be seen that payments in any other 
specific product would be more likely to involve hardships ; 
e.g., an obligation to pay wheat or potatoes or cotton at 
any certain time, would bring infinitely more chances of 
distress resulting from a failure of the crop in that particu- 
lar article. 

Neither is it an arbitrary act on the part of the govern- 
ment. It is purely a favor, an accommodation, provided at 
great cost, for the benefit of the public. All objections, on 



172 EXCHANGE. [BOOK III. 

the ground that it is arbitrary and unjust to compel men 
to discharge indebtedness in coin, are idle and absurd. 
Those who make them are bound to show, what has never 
yet been found, a better standard. 

During the suspension of the Bank of England from 
1796 to 1819, it was gravely argued, by some gentlemen in 
the House of Commons, that " the pound sterling was really 
an abstraction ; " but the return to specie payments in the 
latter year showed that the pound sterling was really a con- 
cretion of 113.001 grains of fine gold, by which all debts, 
public and private, were to be discharged. 

A mixed currency, wherever it exists, forms the standard 
of value for the community, just as certainly as the precious 
metals where they alone are used. That of the United 
States, to be sure, is not a legal tender,* like the Bank-of- 
England notes ; but, as no other currency exists, as there 
is no other money of importance in circulation, it must be 
employed for all purposes, and so, to all practical intents, is 
the standard of value.' 

We are now prepared to inquire how a mixed currency 
performs this function. 

We have seen its fluctuations, certain to occur, yet wholly 
uncertain as to direction and degree. These fluctuations 
make it plain enough, that, as a standard of value, a mixed 
currency must work injustice and mischief, both in expan- 
sion and contraction. Destructive as are the great occa- 
sional convulsions of trade, it is doubtful whether they 
produce as extensive evil as those minor disturbances which 
come every year, and, indeed, affect the entire transactions 
of the people. Arithmetic will hardly suffice to compute 
losses on a scale of such magnitude. Every bargain, in an 
industry of three thousand millions a year, is more or less 
vitiated by a harsh and unnatural change, one way or the 
other, of the currency. 

* This whole discussion supposes this currency in the state it occupied 
before the war of the Rebellion. 



CHAP. IX.] STANDARD OP VALUE. 173 

In the mildest form of such a currency, fluctuations to 
the extent of fifteen per cent arc shown by our diagrams 
to be as commonplace as yearly occurrence can make them. 
. If the yardstick were stretched to 42 inches one year, and 
shrunk to 80 another, or both should happen the same 
year, without any possibility of anticipating the change, or 
any public proclamation of it, that fact would influence man- 
ufactures, and every branch of production, greatly ; would 
not only cause injustice to individuals, buyers and sellers, 
but would have a bearing on the trade and public prosperity ; 
would influence investments, and affect labor no less. 

Yet, under the fluctuations of a mixed currency, buyers 
and sellers of all classes experience injustice as great and 
as distressing as would result to the dealers in cloth from 
the falsification of the yardstick. If the great changes are 
destructive, the more ordinary are constantly embarrassing. 
Arbitrary interference with currency produces mischief and 
injustice, just so far as it operates at all. The quantity 
cannot be artificially increased or diminished, but some one 
is wronged ; either he who relied on obtaining it at ordinary 
rates to discharge his obligation, or he who trusted to get 
quite another value from what he does. 

Enormous transfers of property take place under this sys- 
tem, without any desert in the party who receives what is 
another's, and without any fault in the party who gives up 
what is his own. This it is which makes business a very 
complicated kind of gambling. This it is which tosses up 
or pulls down prices enough to ruin the merchant and man- 
ufacturer or make their fortunes, while their goods are in 
their hands, before they can be turned. 

Not to insist here that injustice between the parts is in- 
jury to the whole, or to dwell on the claims of public morals, 
if we turn to that large class especially entitled to social 
and governmental care and consideration* who put out 
money at interest or invest in stocks, or rely on permanent 
salaries or wages for support, we shall here find a mischief 



174 EXCHANGE. [BOOK III. 

without relief, a wrong without a remedy. These receive 
no appreciable benefit from any of the changes of a mixed 
currency, but all its evils fall heavy and unbroken upon 
them. 

This matter is so near our daily observation as scarcely* 
to need enforcement, so plain as to be scarcely susceptible 
of illustration. The sad effects of such a currency are 
strongly set forth in the following extract from an article in 
the " North- American Review " of January, 1840, under- 
stood to have been written by one who has been long and 
intimately connected with the banking institutions of Mas- 
sachusetts : — 

" It is the standing reproach of our commercial life, that it in- 
volves more intellectual suffering from violent fluctuations than any 
other pursuit. With all our recuperative powers, there is a vast 
waste of life amongst us as a people, growing out of our financial 
disasters. Witness the fact, stated to be derived from accurate 
statistics, that, among one hundred merchants or traders, not over 
three ever acquire independence. Add to this the other fact, also 
deduced from trustworthy records, that commercial and financial 
revolutions produce excessive mortality amongst business men in 
maritime cities. Here we have the cause and effect. Meanwhile 
we have statistical data of the still severer calamities to widows 
and orphans." 

PRICE. 

Currency performs the function of a standard of value, 
by fixing the price of commodities. In order to examine 
the subject intelligently, we shall be called first to notice the 
import of the term " price." It expresses the relation of all 
objects to a common measure or standard. For example, 
if the standard were sheep, it might be said that an ox was 
worth twenty sheep ; the price of the ox would be twenty 
sheep. If the standard were dollars, — that is, certain well- 
known coins, — we should say that the ox was worth twenty 
dollars, and that would be its price. And it would be the 



CHAP. IX.] STANDARD OP VALUE. 175 

same, if by dollars we meant only certain pieces of paper, 
promising to pay these coins. 

Price and value are often confounded together. The dif- 
ference is this : value is the relation which all objects have 
to each other in exchange ; while price is the relation of all 
commodities to one special object, viz. money or currency. 

Price may be increased without increasing value. For 
example : the price of flour in 1859 was $5 ; in 1864 it was 
$10. Yet a barrel of flour had no more value at the latter 
date than before the war, because it would command no 
more of other value; that is, of broadcloth or tea, or 
other commodity. 

This discrepancy is found, not only at different periods in 
the same country, but between different countries at the 
same time. If all commodities in all countries were always 
measured by the same standard, price and value would be 
synonymous ; but if, as often happens, a standard is adopted 
in one country less valuable than, that of others, commodities 
will adapt themselves to the currency, and the agreement 
between price and value is destroyed in the act of vitiating 
the standard. 

"The value of a thing is its purchasing power: the price of 
any thing is its power to command gold, silver, or that which con- 
stitutes the currency of the country. Value may be expressed in 
any commodity whatever : price is expressed in one commodity 
only." — Bascom, p. 22. 

If an inventory of all the property belonging to the people 
of the United States had been made in 1864, at the then 
prevailing prices, it would have amounted to nearly double 
what it was two years before, even though the quantity of 
all commodities had been identically the same. This, be- 
cause prices were measured not by gold, but by credit, or 
the promises of government and the banks ; but the value 
of all these commodities in the commerce of the world, and 
among themselves, was no greater than two years before. 



176 EXCHANGE. [BOOK III. 

The difference between price and value was also strikingly- 
exhibited in the history of the Confederate States during 
the Rebellion. In both sections of the country, the varia- 
tions in 1864 were so great as to attract universal attention ; 
but they always exist, in greater or less degree, under a 
mixed-currency system, because the standard of value, ex- 
cept at short intervals, is not sound. The difference begins 
to manifest itself whenever the currency is inflated beyond 
its natural volume, and increases with that inflation. 

We here present a table, showing the historical variations 
in certain commodities, for a series of twenty-six years, 
under the undisturbed operation of a mixed-currency sys- 
tem. 

We have selected, for the purpose, the period 1834-1859, 
inclusive, because it is the only, one for which we have cor- 
rect data, — that is, well-authenticated returns ; and for the 
additional reason that the period was one of general peace, 
at home and abroad. 

The articles we have selected for this comparison are the 
most common in use, whose prices are best known and 
least liable to variations, except from changes in the value 
of the currency, and therefore, it is supposed, most proper 
for our illustration. 



CHAP. IX.] 



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CHAP. IX.] STANDARD OF VALUE. 179 

These facts are shown geometrically in Diagram No. 2. 

This Diagram may require some explanation. The upper 
line represents the variations in the prices of the ten com- 
modities chosen, for each year, from 1834 to 1859 inclusive, 
as already given in the tables. The lower line repre- 
sents the bank currency, per capita, for the corresponding 
years. 

Several important facts appear in this figure. The first 
to be noticed is the remarkable correspondence between the 
first and second lines, rising and falling together ; proving 
most conclusively, by their agreement through so long a 
series of years, that prices depend on the quantity of cur- 
rency in circulation. 

The average currency, per capita, from 1834 to 1859, 

26 years, was $11.99 

Average prices during that time ......... 20.80 

Highest amount of currency (1837) 17.61 

Highest prices (1836) 29.46 

Next highest prices (1837) 28.40 

Difference between lowest and highest currency . . 185 per cent. 
Difference between lowest and highest prices . . . 121 per cent. 

It will be observed, that the difference in prices is not as 
gre&t,per cent, as the difference in currency per capita. This 
is in accordance with what has been already laid down in 
regard to the unnatural extension of credits, caused by the 
expansion of the currency. These, of course, require a 
larger amount for their discharge. The currency has rela- 
tion to credits as well as commodities. 

The correspondence exhibited, in the foregoing tables and 
diagram, between the quantity of currency and the rate of 
prices, shows conclusively and impressively the effects of a 
mixed currency as a standard of value ; viz., that as it 
expands or contracts from arbitrary but resistless causes, so 
prices are elevated or depressed, — variations which are often 
sudden and excessive. 



180 EXCHANGE. [BOOK III. 

In 1857, the highest point of expansion was attained, 
amounting to 103 per cent over 1849 ; and the price of 
commodities had advanced 69 per cent. 

The list (see United-States Financial Report, 1863) from 
which the foregoing table of ten items was selected contains 
seventy articles, the prices of which correspond essentially 
to those we have presented. 

Two important articles are omitted, viz. cotton and flour, 
from the list here given, because their prices are more 
affected by the foreign market than by our own, and may be 
noticed hereafter. 

After making due allowance for those fluctuations which 
arise from supply and demand and from accidents, the evi- 
dence is most conclusive that the quantity of currency in 
existence does determine, essentially, the prices of commod- 
ities ; and that, as a mixed currency must fluctuate greatly 
in amount from its inherent properties, it cannot perform 
satisfactorily its function as a standard of value. 

The foregoing calculations, it will be observed, are made 
on the currency as estimated per capita. This is regarded 
as the most correct mode ; since, as population increases, it 
is presumed that the industry and trade of the country is 
increased proportionally, and, if so, a larger amount of cur- 
rency will be needed. If the increase of currency is greater 
than the increase of population, the per-capita calculation 
will show it. 

It may be said, at this point, that the same effect on prices 
would be produced by an equal expansion or contraction of 
a value currency. Granted; but such rapid and violent 
changes could not take place. Specie cannot be increased 
like paper. It costs labor, like corn or cotton, and is sub- 
ject to the same laws of supply and demand. It can only 
be brought in because it is wanted, — because some one 
wishes to give its price for it ; but this desire to bring it in 
decreases regularly with the amount obtained. The more it 
is introduced into the country, the less, by the natural laws 



CHAP. IX.] STANDARD OF VALUE. 181 

of trade, is it worth ; the weaker the inducement to send 
for it. If, by any chance, it comes in till there is a redun- 
dancy, the prices of other things are raised, its own value 
is therefore lowered, and it flows off till the equilibrium is 
restored. Such an exportation would cause no more anxiety 
or alarm than the shipment of an equal value of flour. 
With a mixed currency, there is the embarrassing fact, that 
it cannot be exported. The foreign balances must be taken 
out of the specie basis. We have seen the course of con- 
traction that must ensue. 

To observe further the operation of mixed currency as a 
standard of value, and its effect, not on trade generally, but 
on ordinary production, let us take the case of the wheat- 
grower. 

A farmer, we will suppose, has a crop of one thousand 
bushels of wheat, which he sells at ninety cents per bushel, 
which is thirty cents more than it would bring under a 
real-money system. Now, the question — which is of great 
concern to him, and, if to him, to all producers of all com- 
modities — is, whether he gains or loses by this transaction. 

Take a single bushel. He gets ninety cents for it. With 
that, he purchases six pounds of sugar at fifteen cents. This, 
he observes, is five cents more than he used to pay for sugar, 
when his wheat was but sixty cents. He perceives, that, 
having paid five cents per pound extra on the sugar, he has 
just lost all the additional price of thirty cents on the 
bushel of wheat. 

On further reflection, he discovers that he is not so well 
off as when he sold his wheat at the money price of sixty 
cents, because it 'cost him more to raise the wheat.* He had 
to pay more for the labor employed in its production, — 
equal, say, to five cents per bushel, which, on one thousand 

* It may be objected to this view of the case, that, the wheat having 
risen in price, it would require less in quantity to pay for the labor, so that 
the farmer's crop would actually cost him no more than before the rise in 
wages. 



182 EXCHANGE.. [BOOK in. 

bushels, amounts to fifty dollars ; and that sum he will 
actually lose, although selling his wheat at fifty per cent 
advance in price. 

This transaction of selling one bushel of wheat for six 
pounds of sugar fairly represents the result of selling the 
whole crop, and investing the proceeds in other kinds of 
property ; because all commodities have alike risen in price. 

But it may be asked, Suppose the farmer paid a debt of 
nine hundred dollars with the money he obtained for his 
wheat, has he not gained by the rise in price ? If he con- 
tracted the debt before the rise, he certainly has made a 
large gain in the payment of the debt ; for, as things were 
when the debt was contracted, it would have taken fifteen 
hundred bushels of wheat at sixty cents to pay nine hun- 
dred dollars. Here he has gained three hundred dollars, or 
saved five hundred bushels of wheat, less, be it recollected, 
the extra expense of fifty dollars in the raising of the crop. 
His net gain is two hundred and fifty dollars. 

But how is it with his creditor ? He finds, on re-invest- 
ing the money in cattle, horses, sheep, ploughs, wagons, and 
the like, that the nine hundred dollars will purchase but 
two-thirds as much as when he loaned the money. He has 
lost three hundred dollars. The farmer promised to pay 
" dollars ;" but he did not, he only paid the promise of dol- 
lars ; and these promises were so easily made, became so 
plenty, proved so cheap, that they were really worth but 
two-thirds of what they professed to be. This he found 
when he came to use them in buying articles for his 
family. 

But, to carry the inquiry entirely through, we must ask 
who gained the fifty dollars the farmer, in the case sup- 
posed, lost by the extra cost of labor ? The laborer ? He 
was certainly paid an extra price ; but he gained no value 
by it, because all the commodities he purchased with the 
proceeds of his labor were raised more than his wages, so 
that he lost more than he gained. The rise in price has, in 



CHAP. IX.] STANDAKD OP VALUE. 183 

fact, benefited nobody but the debtor, and him only at the 
expense of the creditor, who was virtually swindled out of a 
part of his property. This is the final result, when care- 
fully analyzed, of an expansion of prices through the expan- 
sion of the currency. 

Every advance in price, occasioned by the depreciation of 
the currency, is sure to be followed ultimately by a return 
to the specie standard. Suppose that, during an expansion, 
a farmer, encouraged by the high price of wheat, purchases 
land to the amount of nine hundred dollars, in the expecta- 
tion that he can pay for it with one thousand bushels of 
wheat, at ninety cents per bushel. A contraction takes 
place, the price of wheat goes down to sixty cents, and, to 
pay his note of nine hundred dollars, he must sell fifteen 
hundred bushels of wheat. He has lost five hundred bush- 
els, just what the debtor, in the other case supposed, gained, 
less fifty dollars which he will now save in the labor cost of 
his wheat. 

We here see that the effect of raising prices without 
increasing values is to vitiate all existing contracts to pay 
money. If the farmer, in the case supposed, had promised 
to pay so many bushels of wheat, all would have been well ; 
but he promised to pay dollars ; and, when the price of 
wheat was measured by dollars under a contraction, it made 
the difference stated. 

Much misapprehension arises from confounding special 
and general prices, or the price of an individual article, as 
distinguished from that of the great mass of commodities. 
"We are told that a variety of considerations enter into and 
affect prices ; viz., demand and supply, cost of production, 
&c, &c. All this is perfectly true of an individual article, 
whose price may and does vary from time to time, as com- 
pared with other commodities, under the operation of these 
causes. One article may be very high, while all others are 
low, or the reverse ; but this does not tend to disprove the 
principle, that general prices are determined by the quantity 



184 EXCHANGE. [BOOK III. 

of the currency. "We can take into view all the circum- 
stances which act upon a particular commodity, and by 
which it is made, for the time being, an exception to the 
general rule, without disturbing the principle laid down, or 
casting any doubt upon its operation. 



CHAPTER X. 

EFFECTS OF A MIXED CURRENCY. 

We stated two principal questions in regard to mixed cur- 
rency : — 

1st, Does it perform satisfactorily the functions of money ? 

2d, What, and how great, are its effects on public inter- 
ests, beyond the proper effects of value currency ? 

In the four chapters immediately preceding, we have dis- 
cussed the first question, with a result unfavorable to such 
a currency. We now approach the second of these ques- 
tions, — What are the effects of mixed currency? 

I. A mixed currency endangers domestic tranquillity. 
This is a proposition which we shall consider solely with 
reference to society in the United States. 

That mixed-currency banks can never, in fact, fulfil their 
agreements, if called on to do so, we have already shown ; 
and, since they are ever liable to such calls, there is con- 
stant danger from this source. At any moment, there may 
reasonably arise, through this cause, such general dissatis- 
faction among the lower classes as shall tend to extensive 
disturbances of the public peace. 

This danger is greatly enhanced by the fact, that, within 
the last forty years, there has been created a vast system of 
savings institutions, which receive the money individuals 
are disposed to deposit with them, and promise to return it 
on demand, or at short notice ; generally on demand. 



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and, basis ef Specie 



Deposits in Savings Banks 


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85 Mlliens. 






Specie 










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Liabilities /OO Vitlions 



Specie 64 Millions 



CHAP. X.] EFFECTS OF A MIXED CURRENCY. 185 

Now, should any cause operate by which confidence in the 
solvency of the general banking system of the country is 
shaken, it will naturally, nay, inevitably happen that a run 
will be made on the savings institutions. These can only 
meet their engagements by drawing on the banks. But, if 
these have all their resources strained to meet the ordinary 
wants of the business community, how can the drafts of the 
saving banks be met ? How can currency be supplied for 
this extraordinary demand ? This question can only be 
intelligently answered by reference to the condition of both 
these kinds of institutions. 

We will, for this purpose, take the currency of Massachu- 
setts as it stood in 1860 : — 

The savings banks had on deposit $45,000,000 

rp, , , , , (deposits 30,000,000 

ihe currency banks had ■{ L 

J I circulation 25,000,000 

Total $100,000,000 

The currency banks had specie . 6,500,000 

Difference $93,500,000 

This is exhibited in Currency Diagram No. q. 

Here, then, are legal immediate demands, upon the cur- 
rency banks, of fifty-five millions ; and, upon the savings 
banks, of forty-five millions. Suppose there should arise 
some dissatisfaction, or public uneasiness, which should 
prompt to a run on both these kinds of banks. It certainly 
is possible, not to say probable. Suppose that the institu- 
tions for savings are called on for only one-fourth of their 
deposits. They must look to the banks for eleven millions 
of currency at once. The banks begin to pay out their bills ; 
but the specie is at once demanded, and of that they have 
but six and one-half millions against their own immediate 
liabilities of fifty-five millions. They could not stand a run 
of two days, because their own deposits would be drawn in 
specie just as soon as the real state of affairs was discov- 



186 EXCHANGE. [BOOK III. 

ered. The banks must, therefore, suspend at once. What 
would naturally follow in a time of great public excitement, 
when the interests of some party or faction required a gen- 
eral breaking-up of society ? 

It is not enough to evade this, by saying that such an 
event has never happened, though the banks have several 
times suspended. That is quite true ; yet it does not follow 
that it never will. Previous suspensions have originated in 
commercial causes. Suppose, on the other hand, a run were 
made on account of political or social disturbances ; that 
the laboring class — factory operatives, railroad gangs, the 
servants in our families — were incited to demand their de- 
posits in the savings institutions. Could they not prostrate 
the entire currency in twenty-four hours, by merely demand- 
ing their just dues ? 

Whether such a probability is remote or uncertain, it 
does not seem wise to maintain a system which can, by any 
possibility, produce results so disastrous ; especially, if there 
are no advantages whatever in such a state of things. 

Premonitory symptoms have not been wanting of such a 
catastrophe as, under aggravating circumstances, might over- 
throw all the moneyed institutions of the country, and even 
endanger the government itself. 

We are not the homogeneous people we were. We 
have elements of weakness and discord that did not exist in 
earlier times. We have, especially, a large foreign popula- 
tion, as much interested as any other in the funds of our 
savings institutions, which might, at any moment, if pro- 
voked to do so, throw our whole banking system into sus- 
pension. 

It cannot be wise to ignore these palpable facts, or the 
consequences that, in the natural course of things, are likely 
to come out of them. The danger can only be removed by 
a change of system. 

II. A mixed currency has a demoralizing influence upon 
a community, industrially and socially. 



CHAP. X.] EFFECTS OF A MIXED CURRENCY. 18T 

If what has been said in regard to this kind of currency 
is correct, such an influence cannot for a moment be ques- 
tioned. If it excites to wild and extravagant speculation at 
one time, and plunges its victims into bankruptcy and ruin 
without fault at another ; if it excites hopes and expecta- 
tions which must necessarily come to disappointment and 
distress ; if it increases to an enormous extent the natural 
risks of trade, and exposes all business operations to ah in- 
calculable hazard, — then the mercantile character and the 
general tone of morals cannot but be unfavorably affected. 

The influences that hold men to strict probity, steady 
industry, and a strong sense of honor, are feeble enough, 
and have enemies enough, without the discouragements and 
embarrassments arising from such causes as we have de- 
scribed. 

Society should place its premium on virtue, and not on 
vice. 

Those who have witnessed the terrible convulsions occur- 
ring in the United States within forty years, know but too 
well how sad has been the effect on individual and national 
character. 

It is unnecessary to dwell upon a point so evident, and so 
generally admitted by all who understand the matter ; yet 
its recognition could not properly be omitted in the exami- 
nation of the mixed-currency system. 

III. A mixed currency endangers the national safety in 
war. 

With the existing ideas and institutions of society, and 
while no preparations are made in time of peace to prevent 
the recurrence of war, but every effort to meet it, and thus, 
of course, to strengthen and perpetuate the war system, it 
becomes a matter of great interest to inquire as to the effects 
of a mixed currency on the safety of a nation in the event 
of war. 

We have already shown that a mixed currency is greatly 
affected by a demand for specie to send abroad. Hence, as 



188 EXCHANGE. [BOOK III. 

war must always call for an extraordinary importation of 
foreign merchandise and materials, and as such extraordi 
nary importation must require the shipment of specie, a 
contraction and panic, or speedy suspension, must be the 
certain consequence. 

Again, since so great a part of a mixed currency usually 
consists of credit, and since credit rests wholly on confi- 
dence, any thing which impairs the latter compels a con- 
traction or withdrawal of the currency. 

Now, war generally, we may say uniformly, does this : for 
how long it may last, how great may be the demand for 
money, how large the destruction of capital, and what the 
final issue, must be a matter of doubt ; and therefore ita 
occurrence always impairs public confidence to a greater or 
less extent. 

These two causes, then, are at once brought to bear upon 
a mixed currency with fatal effect. The result has always 
been, and always must be, that, under such circumstances, 
the mixed-currency banks suspend ; because their circula- 
tion cannot be withdrawn at the time without producing 
universal bankruptcy, annihilating their own capital, and 
stopping the wheels of government. 

It was so in England during the war with Napoleon ; in 
the United States during the war of 1812, and in the time 
of the great Eebellion. 

What comes in consequence of all this ? The nation is 
obliged to carry on its vast pecuniary operations with a 
broken-down currency. This, of course, involves the finan- 
ces in great embarrassment, vastly increases the public 
expenditures and the national indebtedness. The whole 
financial system of the country is crippled, and becomes as 
weak as its currency. 

No better illustration of the truth of this statement was 
perhaps ever afforded than that found in the experience of 
the United States during its great struggle. 

The country was suddenly involved in a stupendous war, 



CHAP. X.] EFFECTS OF A MIXED CURRENCY. 189 

— technically, only a civil war, but, practically, a great inter- 
national struggle, so vast were its dimensions, so strictly 
was it sectional ; a conflict between two different civiliza- 
tions, on different though contiguous portions of the Amer- 
ican continent. 

At the commencement of the struggle, the currency, as 
we have before said, amounted, circulation and deposits, to 
four hundred and sixty millions against eighty-three mil- 
lions of specie. Upon the mere threat of secession, so 
greatly did it impair public confidence that the banks at the 
South began to suspend ; and their example was followed 
until most of the Western, and many of the Eastern, were 
in a state of suspension. After the first shock had passed 
by, most of the banks in the loyal States resumed specie 
payments ; but the large demands of the government, in the 
course of about a twelvemonth, compelled a universal sus- 
pension by both the national treasury and the banks, and 
the whole country was thrown upon an irredeemable paper 
currency. 

All this happened, not because the currency was so redun- 
dant, but because it was so unsound. Had it been based in 
full on specie, this disastrous result would have been avoided. 

Now, if it ever could be supposed politic or safe to send 
away the real money of a country and live on credit, if this 
could ever be regarded as good economy or statesmanship, 
when should it be done ? When the nation is in prosperity, 
and does not need this little gain, or when it is strained to 
agony in the struggles of war ? If this is really a resource, 
should it be spent in time of peace for extra imports of 
wine and silks, or reserved to the great trial of life for the 
people, when it may bring back the munitions of war ? 

If we were to dispense with three hundred millions of 
gold that form our material currency, was it wise to send 
it off in years of quiet and prosperity, instead of reserving it 
to the decisive hour of our nationality ? 

In time of war, a mixed currency always becomes an un- 



190 EXCHANGE. [BOOK III. 

mixed paper currency. Being at all times really inconvert- 
ible, any disturbance in public affairs which destroys, or 
even essentially impairs public confidence, will cause a gen- 
eral suspension of the mixed-currency banks, and, of course, 
of the government, and the substitution of a credit for a 
value currency. 

If this is true, — and all the facts of history go to prove 
it, — then every nation, which, in time of peace, relies upon 
a mixed currency, must, in time of war, suffer all the dis- 
asters incident to an irredeemable paper currency; must 
pay a great deal more in all its purchases, require larger 
loans, and accumulate greater debt, — greater in proportion 
as the currency is deficient in the element of value. 

" A nation may almost as well go to war with paper guns as a 
paper currency." — J. Y. Smith. 

The truth of this was certainly very strongly exhibited in 
the experience of the government of the United States dur- 
ing the Rebellion. The failure of the currency compelled 
the national legislature to adopt the arbitrary measure of 
making its own irredeemable notes legal tender. 

This was a palpable violation of the most sacred rights of 
the people, and involved the treasury in a labyrinth of em- 
barrassment and wasteful expenditure. Necessity, which 
knows no law, demanded all this ; and there may be little 
or no blame on the immediate agents. The law of value 
had already been violated by the introduction, in peace, 
of the element of credit into that currency, which the gov- 
ernment was obliged to make use of in time of war. It was 
not easy to change its character at such a crisis, and it 
was allowed to go on to its proper consequences. 

If these are the natural and inevitable results of a mixed 
currency in such an event, is it not true that a people im- 
posing on themselves a mixed currency can never be finan- 
cially " prepared for war " ? 

IV. A mixed currency discourages domestic manufac- 



CHAP. X.] EFFECTS OF A MIXED CURRENCY. 191 

tures, disturbs the proper relation of exports and imports, 
and puts the balance of trade against the people employing 
the greater proportion of credit. 

These effects will be recognized as injurious by all classes 
of persons ; but those who are so solicitous for the positive 
encouragement of domestic manufactures, and for the re- 
straint of imports, as to favor the enactment of prohibitory 
or protective laws imposing duties on the foreign article, 
will, of course, most fully appreciate and deeply feel this 
tendency of a mixed currency. 

The course of this will be best observed in an illustration 
from the manufacture of a specific article : — 

" Suppose that a certain kind of broadcloth can be afforded by 
the foreign manufacturer, delivered at New York, for two dollars 
per yard ; the same article might be made in this country, but 
would cost two dollars a yard, without any profit whatever. Of 
course, then, we cannot afford to make the article. The govern- 
ment, in order to encourage its production here, lays a duty upon 
the imported article of fifty cents per yard ; but, at the same time, 
establishes banks which manufacture a mixed currency, and double 
the natural amount of money. The American manufacturer now 
proceeds to erect his mills ; but wages and materials have so ad- 
vanced in price, by the expansion of the currency, that it costs him 
twenty-five to fifty per cent more than it otherwise would have 
done. He builds machinery ; but this also costs him proportionably 
high. He proceeds to purchase raw materials, and employ labor 
in manufacturing ; but all are advanced in price for the same reason. 
His own expenses for living are also greater ; and, should he be 
obliged to hire money, that will generally be found to have advanced 
in price, or rate of interest. Under these circumstances, he cannot 
make the cloth so as to afford a profit ; and it will not be surprising 
if he should clamor for more protection. But it may be said, that 
the same causes that have advanced the expenses of living, and, 
consequently, of labor, will equally have advanced the price of 
broadcloth. Not so. The price of the broadcloth will be deter- 
mined by the rate at which it can be afforded by the foreign manu- 
facturer ; and if he can pay the duty of fifty cents per yard, and 
yet obtain a fair profit, he will send all the market demands. 



192 EXCHANGE. [BOOK III. 

" There is another view of the matter. Suppose we would ex- 
port our plain cottons, for example, to India. "We there meet the 
English article, made under a currency more valuable than our 
own, which can consequently be afforded for less ; since, with the 
same amount of the money of India {i.e., value money), the English 
manufacturer can pay for much more labor in England than the 
American manufacturer can in America. It is true that the rate 
of w ages is lower in England than in this country ; but, in addition 
to this, England has the very great advantage of a currency nearer 
the currency of international exchange, which is always strictly 
value money. In such a state of things, not all the tariffs that ever 
were or ever will be imposed can adequately protect our manu- 
factures. So far as they have arisen or flourished, it has been in 
spite of these disadvantages." # 

During the continuance of the compromise tariff, estab- 
lished in 1832, and which terminated in 1842, the currency 
varied from 111.82 to $17.61 per capita, equal to an expan- 
sion of more than fifty per cent ; while, during the same 
period, prices (as shown by table V., page 177) fluctuated 
to a greater extent. The variation in prices was larger even 
than the percentage of protective duties. 

So the tariff of 1842, which began to take effect in 1843, 
when the currency was $6.18 per capita, was more than 
counterbalanced by the expansion of the currency to $9.94 
in 1846. But the manufacturer suffered as much from the 
periodical contractions as from the expansions that pre- 
ceded them ; for while, by the latter, the duties were ren- 
dered nugatory, all business men met great losses from the 
failures and the general derangement and stagnation which 
the former produced. No tariff of reasonable extent, such 
as the people of the whole nation would endure, can ever 
place the domestic manufacturer in a position of security 
and of reliable profit, while competing with such an immense 
advance in prices as must certainly accompany an expansion 
of the currency. Nor can it fail to be true, that the normal 
industrial development of any country, in which such a 

* Walker on Money and Mixed Currency, p. 39. 



■3 

Oil 







o a oo t- c ic "f 



CHAP. X.] EFFECTS OF A MIXED CURRENCY. 193 

currency exists, must, to a very great degree, be interrupted 
or distorted. All ordinary business calculations are over- 
turned. An element of hazard is introduced, fatal to the 
shrewdest schemes. 

The terrific struggles through which American manufac- 
turers have passed, ever since the establishment of the first 
tariff in 1816, have been caused, not by foreign competition, 
solely or mostly, but by a false and delusive domestic cur- 
rency. Fully as we are opposed to the policy of protective 
duties, we are still more opposed to that system of currency 
which neutralizes them, and renders the legitimate success 
of home manufactures impossible, even after so great sacri- 
fices to introduce them. 

There is a still more striking view of the connection be- 
tween protection and currency. 

It is generally believed that high tariff duties restrict the 
importation and consumption of foreign merchandise. It is 
a popular cry, that " government ought to lay heavy duties, 
so as to prevent an adverse balance of trade, and the conse- 
quent shipment of specie abroad." 

It is true, as a principle, that, the greater the price, the 
less the consumption ; and that, as the imposition of taxes 
on the foreign article increases price, so it must, other 
things equal, decrease consumption. But other things are 
not equal. They have not been so in this country during 
this century. The facts in the case do not show that heavy 
duties necessarily reduce the consumption of foreign arti- 
cles. On the contrary, it is found that the largest importa- 
tion has often taken place during the existence of the 
highest tariffs. Diagram No. 7 will exhibit the relations of 
the tariffs to the amount of imports, from 1816 to 1861. 

Of this diagram, showing the tariffs and the consumption 
of foreign commodities under each, it must be remarked, 
that the line indicating the different tariffs does not ex- 
press with precision the actual percentage of tax imposed 
by each, because that is not practicable : it is only given as 

13 



194 EXCHANGE. [BOOK III. 

an approximation. Each of the tariffs imposed different 
rates per centum on different items ; and some of the tariffs 
have a large proportion of specific duties, or so much per 
yard, gallon, or pound ; so that the exact per centum cannot 
be ascertained, nor is this necessary to our purpose. We 
are able to determine, with sufficient accuracy, the general 
percentage of each tariff, to enable us to judge whether the 
consumption rises and falls in correspondence. 

The tariff of 1816 was the first ever laid for protection, 
and is estimated at twenty-four per cent. Four years after- 
wards, viz. in 1820, the tariff was increased. Eight years 
afterwards (1828), a very great advance was made, which is 
placed in our estimate at forty-eight per cent ; but it may 
have been much higher than that, as many articles were 
charged with high specific duties, amounting to from one 
hundred to two hundred per cent. It was almost prohibi- 
tory, and gave such umbrage to South Carolina and other 
cotton-growing States, that the celebrated compromise tariff 
of 1832 was enacted, which reduced the duties at the rate 
of ten per centum, on all over twenty per cent, for ten years ; 
so that, at the end of that time, there would only remain the 
twenty-per-cent duty. 

This tariff came down to its minimum in 1842, a time of 
great depression of prices and trade, growing out of the 
monetary revulsion through which the country had just 
passed. A strong and successful appeal was made for an 
increase of duties ; and the tariff known as that of 1842 
was established, giving high protection. This occasioned 
so much dissatisfaction, that, after four years, the rates were 
again reduced by the tariff of 1846. This remained in op- 
eration for the unprecedented period of eleven years, when 
another reduction was effected by the tariff of 1857. This 
lasted for four years, when the necessities of the treasury, 
in consequence of war, required the imposition of higher 
duties in 1861 ; since which they have been still further 
advanced. 



N?5. 



i MilUcns of Currcrte 



Skcfrina the Pblufne of the Currency and the Imports 
/or Consumption for 86 years. 




CHAP. X.] EFFECTS OF A MIXED CURRENCY. 195 

With these explanations of the diagram, we are prepared 
to inquire into its teachings. 

Is there any such correspondence between the two lines 
as to indicate that one is governed by the other ? Does it 
appear, that, as the tariff rises, importations fall off; that, 
as it is lowered, importations increase ? Certainly not. We 
can perceive no such striking correspondence between the 
two lines as to lead us to believe that importations are gov- 
erned greatly by the tariff. 

There seems to be a disturbing influence which deranges 
the natural movement of the line of consumption. 

The two lines clearly do not show such a correspondence 
as to prove that importations are uniformly governed by the 
tariff. 

A reference to Diagram No. 8 will, we think, show the 
disturbing cause, or rather by what law importations are 
controlled. 

Here we find a correspondence so uniform and persistent 
as to decide the question, beyond cavil, that the demand for 
foreign merchandise depends upon the quantity of currency 
in the country ; and, as that increases or diminishes, so does 
the consumption of imported articles. 

The immense expansion of 1836 carried the consumption 
up to $10.93 per capita, under a medium tariff; while, under 
a still lower one, in 1840, the consumption was but 15.21. 
Whereas, if consumption is governed by the tariff, it should 
have been higher than in 1836. 

According to the natural effects of the tariff (the en- 
hanced price of foreign commodities), consumption should 
be highest when the tariff is lowest, and vice versa. We 
have seen that such correspondence does not take place. 
We then conclude that some other force or influence oper- 
ates to neutralize the power of protective duties, and even 
reverse the natural effect. The last diagram proves the 
existence of such a cause, and shows its effects on im- 
ports. 



196 EXCHANGE. [BOOK III. 

Hence we may lay it down as a principle, that a sound 
currency is more important, as affording protection against 
foreign competition, than a high tariff. 

We close our remarks on this subject, by quoting the fol- 
lowing forcible and just statement, found in the " Bankers' 
Magazine " (New York) for 1859-00, page 2 : — 

" So far as the currency of a country is alloyed, so far as any 
thing inferior to bullion is allowed to ride as a dead weight on bul- 
lion's back, it is of little consequence whether such dead weight 
be composed of lead or copper, paper or leather ; nor, so far as the 
country's home trade is concerned, does it matter whether the sub- 
stitute for bullion circulates in distinct pieces, or is incorporated 
into the gold and silver coin at the mint. It is of great importance 
to the profits of our foreign trade, however, that every fraction of 
gold and silver in our currency should have its own proper share 
of alloy, or paper inseparably attached to it ; so that foreign pro- 
ducers, after they have takes paper-money prices of us for their 
goods, shall not wind up their business (as they have done hitherto) 
by palming their share of paper money upon us at par for actual 
gold. As things now are managed, American trade and industry 
are made to buy paper at the banks at the price of gold, and sell 
gold to foreigners at the price of paper." 



CHAPTER XI. 

EFFECTS OF A MIXED CURRENCY (concluded). 

V. A mixed currency causes unnatural and extreme fluc- 
tuations in the rate of interest. 

If a mixed currency is in its nature constantly fluctuating, 
at one time very redundant, at another very scarce, it would 
seem to follow, as a necessary consequence, that the rate of 
interest, which is merely the sum paid for the use of money, 
or currency, would he equally so. Practically, we find that 
such is the fact. While the currency is in the process of 



CHAP. XI.] EFFECTS OF A MIXED CURRENCY. 197 

expansion, and is enlarged by new issues from day to day, 
money must be plenty, and the rate of interest low. 

When the currency has become largely increased, and 
speculation has been engendered by the rise of prices, the 
demand for money Avill increase faster than the supply, and 
the rate of interest will begin to advance. 

When the banks have arrived at that point at which they 
must of necessity contract, and they begin to take in their 
currency, and, of course, to create a scarcity of the means 
of paying debts, then the rate of interest will rise to a very 
high point, not unfrequently to four or six times its natural 
rate. 

The indebtedness which the expansion has encouraged 
must now be met, at all events and at any sacrifice. Sales 
of property cannot be made for cash, because all cash re- 
sources are needed to meet existing indebtedness, rapidly 
maturing ; and, consequently, a great pressure is made upon 
the money market. The severity of this is indicated by the 
rate of interest. 

Such being the facts in the case, we need not be surprised 
to find that the highest rates of interest are paid at times 
when there is far more than the average amount of cur- 
rency. 

On the other hand, when indebtedness has been dis- 
charged, both by the banks and individuals, and the cur- 
rency reduced to very moderate dimensions, we find the rate 
of interest very low. 

Take the years 1837 and 1857. Interest was up to 
thirty-six per cent ; yet there was a greater amount of cur- 
rency, per capita, then in use, than ever before or since. 
Take the years 1842-43, for an opposite example, when there 
was less currency than ever before. Money was very plenty 
and very cheap. 

This law has governed the rate of interest at all times 
under our currency, and is strikingly exhibited in our Dia- 
gram No. 6, inserted herewith. 



198 EXCHANGE. [BOOK III. 

By this diagram, we see, — 

First, The frequent and extreme fluctuations in the rate 
of interest. 

Second, That the highest rates of interest occur when 
there is the greatest expansion of the currency, as witness 
1836, 1839, 1854, and 1857. 

Third, That the lowest rates of interest are found where 
there is the smallest amount of currency, as in 1843-45. 

Fourth, We observe some remarkable exceptions to these 
general facts. 

In 1834, we find the interest up to twenty-four per cent, 
while, in the following year, it was down to five. This is 
easily explained by those cognizant of the facts. The 
United-States Bank then in existence was extremely de- 
sirous of recharter ; and, to secure this, it was thought 
necessary to produce a tremendous pressure in the money 
market, or, in the expressive language of the day, " put on 
the screws." This result was a high rate of interest. 

The following year, 1835, the bank took the opposite 
course, and interest fell below the natural rate. 

In 1836, there was a great expansion of the currency, as 
shown in the lower line of the diagram. Speculation was 
rife, the banks could not meet the demand for money, and 
interest went up to thirty per cent. In 1837, the banks 
suspended, then issued freely, and interest went down to a 
low point. In 1838, the work of contraction began ; a mul- 
titude of banks in the West and South failed, and the 
pressure upon the solvent banks became great ; interest 
went up to eighteen per cent. The year 1839 witnessed 
still greater distress for money. Resumption of specie pay- 
ments by the banks began to take place, and consequently 
a great contraction of the currency. There was also a very 
large exportation of specie that year ; and, by these combined 
causes, the rate of interest ran up to thirty-six per cent. 
In 1840, on the other hand, more specie was imported than 
exported. The indebtedness of the country had been, in 



/'irrrrif 



SJtcmng fhr Flnclualivns in 1ft e Jterte cf Interest 



3fi 




















18M 








35 
34 
33 
32 








J 


















































3K 


















30 




is:,r 


38 














20 








28 












27 












26 












25 












24 

23 


!H7,I 














22 












21 








20 












1.0 


















IS 


















17 






















16' 


















15 

















-19_ 
















14 
























13 


























12 
II 


jj 








4& A« 




tfl 






















































10 








- 


















9 

s 








11 






sa 


















35 




m 



















54, 








59 


7 










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6 ™ 








45 


1 5U 

1 B 










ft 








ill 




44 | 




,» 




4 


















3 






i_«s 






ss 






2 






ft ale //* fn. 


fa/vu/ 






1 













































17 




1857 








N 






Hi 


36 | 










15 






185T 


14 


A 56 


1859 


13 






39 

n 


531 UU 






12 


35 




38 1 










II 


34 1 


51 1 




5 a 




10 




48. 50 




A 




jisl L*i 




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CHAP. XI.] EFFECTS OF A MIXED CURRENCY. 199 

great measure, discharged, and money was plenty. Inter- 
est was down to five or sis per cent. In 1841, there was 
again an export of specie, and also in 1842 ; and the rate of 
interest went up to nine and twelve per cent. But, in 1843, 
the lowest point was reached, more than twenty millions of 
gold were imported, and money was a drug. Interest was, 
for a while, almost nominal. Large amounts were nego- 
tiated as low as three and a half per cent. 

From this time forward, we have only the natural results 
of a mixed currency in its fluctuations. In 1847, the rate of 
interest was high, — eighteen per cent, — though the cur- 
rency was not redundant. This was the year of the Irish 
famine ; and we imported twenty-two millions of gold above 
the exports. From 1849 to 1857, the currency was con- 
stantly increasing. Severe fluctuations in the money market 
took place, but no grand revulsion until 1857, when so great 
was the inflation of the currency, and consequently the 
general credit of the country, that an explosion took place ; 
interest going up to thirty-six per cent. All these facts are 
significant, and form an essential part of the history of 
mixed-currency banking. 

The comparative fluctuations in the United States and 
England is shown by the following table of rates of interest 
from 1844, when Sir Robert Peel's act was passed, up to 
1858, inclusive, — fifteen years. The rates of the Bank of 
England are from official sources : those in the United States 
are furnished by one * who has kept himself acquainted with 
the street rates in the city of Boston. The banks being pro- 
hibited by legislation from taking more than a fixed per 
cent, the actual value of interest, or the use of money, can 
only be ascertained from quotations of transactions outside. 
These are essentially correct, as applied, not only to the par- 
ticular market in which they were taken, but to the other 
large money markets of the country. 

* Joseph G. Martin, Esq., Boston, author of many valuable statistical 
tables. &c. 



200 



EXCHANGE. 



[BOOK III. 



Table VI., showing the Fluctuations in the Rates of Interest in England and the 
United States from 1844 to 1858, inclusive. 



Teak. 


Kate, Bank 
of England. 


Remarks. 


Rate, 
United States. 


1845 .... 


4 — 21 
2|- 3i 

3i— 3 
3 — 8 

5 — 3 
3 — 2^ 
2i- 3 
3 

3 — 2 
2 — 5 
5 — 51 

5 — 6 

6 — 44 

54-10 

9 — 24 


Passage of English Bank Act . 


4 — 54 

5 6 


1846 




4 12 


1848 




7 —18 
12 18 


1849 




7 15 


1850. . . 




61—10J 
6 16 


1851. . . 




1852. 




54 9 


1853 




6 — 18 


1855 




8 —18 
64—15 
7 11 


1856. 






The great revulsion .... 


9 —36 
34— 9 



The average rate of interest in the Bank of Eng- 
land, from 1844 to 1858, as computed from tables 
in the " Merchants' Magazine," vol. li. page 465, 
was 3.82 per cent. 

Approximate average for the same time in the 

United States 10.5 „ 

"We say approximate average; for the data are too imper- 
fect in this country to give any exact results. The average 
of 10.5 may be somewhat too high ; and yet, as computed 
upon transactions made in Boston, New York, Philadelphia, 
Baltimore, Cincinnati, Chicago, and St. Louis, it is doubt- 
ful whether it is much in excess of the true average rate. 

The dividends which the banks of this country make, 
after paying heavy taxes and general expenses, show, that 
the rate of interest they obtain, notwithstanding the legal 
restriction, must be high with them ; and it is notorious 
that interest " outside " at all times, when money is in 
demand, is greater than that charged by the banks. The 
interest paid upon mortgages and other permanent invest- 
ments is most commonly six per cent. It is mainly on 
business paper that the high rates are obtained. 



CHAP. XI.] EFFECTS OF A MIXED CURRENCY. 



201 



Table VII., showing the Fluctuations in the Rate of Interest at the Bank of England 
for 160 Years, divided into different Periods. 



Date. 


Term. 


'aS. 


Average 
Term. 


Rate of 

Interest. 




Years. 




Y'rsm.d'ys 




1704 to 1814, inc. 


Ill 


5 


20 5 20 


4 to 5 


1815 to 1835, „ 


21 


3 


7 


4 to 5 


1836 to 1843, „ 


8 


8 


10 


4 to 6 


1844 to 1858, , 


15 


49 


3 2 


2 to 10 


1859 to 1S63, „ 


5 


44 


2 8 


2 to 8 



Bank in suspension last 17 years. 
Bank in suspension first 6 years. 

Bank Act of 1844 suspended 1847. 
Bank Act suspended 1857. 



The foregoing table presents a striking view of the 
mixed currency of England. 

1st, The great contrast between the stability of the rate 
of interest for the first one hundred and forty years and the 
last twenty years ; only sixteen changes in the rate during 
the former, and ninety-three changes during the latter 
period. 

2d, The great and violent fluctuations within the last 
twenty years, ranging from two to ten per cent, corre- 
sponding to the variations in the United States from four 
to thirty-six. 

3d, We observe the several suspensions of the Bank of 
England, and of the Bank Act of 1844. 

4th, "We observe the same succession of panics as have 
been witnessed in the United States. Sir Robert Peel, in 
his speech on the suspension of the Bank-charter Act in 
1847, specifies the following : " the panics of 1784, 1793, 
1810, 1819, 1826, and 1837." The panics of 1847 and 
1857 have since been added. 

Between the years 1784 and 1857, inclusive, — a period 
of seventy-three years, — there have been eight panics, or, 
on an average, one in nine years, if we reckon that of 1784. 

They correspond very nearly with those panics which 
have occurred in the United States. And here it may not 
be improper to present some additional facts in regard to 
the British currency, showing in how far it corresponds 
to our own in its character and effects. 



202 EXCHANGE. [BOOK III. 

THE CUERENCIES OF GREAT BRITAIN AND THE UNITED STATES 
COMPARED. 

From 1844 to 1859, inclusive (sixteen years), the average 
circulation of all the banks — English, Irish, and Scotch — 
was thirty-seven millions sterling ; average specie, eighteen 
millions. 

"We have not at hand any account of the deposits in any 
of these banks, except the Bank of England. In that, the 
average of deposits, public and private, was about sixteen 
millions, while the circulation was nearly twenty-one. It 
is well known that the deposits of the United Kingdom are 
made chiefly in those joint-stock banks which do not issue 
currency, but are confined to the operations of legitimate 
banking. In addition to this, we have the consideration 
that the Bank of England receives very largely of public 
deposits, which go to make up the sum already stated. 
"We shall therefore be safe in estimating that the deposits 
of all the currency banks of the United Kingdom are less 
in proportion to their circulation than are those of the Bank 
of England. If, then, we assume the deposits to be on the 
average, in all the remaining banks, fifty per cent of the 
circulation, we shall have the following result for the cur- 
rency of Great Britain : — 

Bank of England's circulation 21,000,000 

„ „ deposits 16,000,000 

Other Banks' circulation 16,000,000 

„ „ deposits (estimated) 8,000,000 

61,000,000 
Total specie, as before 18,000,000 

This would be equal to nearly thirty per cent against 
eighteen per cent in the currency of the United States, 
showing a considerable superiority in quality. 

But this is only a partial view of the matter. The Bank 
of England issues no notes of less denomination than five 



CHAP. XI.] EFFECTS OF A MIXED CDEEENCY. 203 

pounds. The banks of Ireland and Scotland issue none 
less than one pound (or five dollars) ; while, in the United 
States generally, bank-notes are issued as low as one dollar 
(or four shillings sterling). This makes a vast difference 
in the amount of specie in the hands of the people. 

All small transactions are made in gold. A traveller 
may pass months in England, and expend thousands of 
dollars, without ever seeing a bank-note in the hands of any- 
body. 

Probably it would not be extravagant to suppose, that 
there was, on an average, a sum equal to two pounds to 
each inhabitant. It has, indeed, been estimated much 
higher; but allowing only two pounds each, equal to ten 
dollars, we should have, on a population of twenty-six mil- 
lions, fifty-two millions sterling, equal to, say, two hundred 
and fifty million dollars. 

From the foregoing statements, it will be seen how much 
greater is the stability of the currency of Great Britain 
than that of the United States. 

The currency of Scotland approaches more nearly to that 
of this country than any other section of Great Britain. 
One-pound notes are issued to the extent of two-thirds of 
its whole circulation ; and the proportion of specie held by 
the banks is smaller. 

The consequence is, that monetary affairs are more fluc- 
tuating, and the number of bankruptcies greater, than in 
the other part of Great Britain. 

There are no reliable statistics by which to determine the 
relative proportion of failures in each of the different mixed- 
currency countries of the world; but, had we the data, it 
would undoubtedly appear that the proportion of failures in 
each country was governed strictly by the character of its 
currency. 

In the United States, where the currency for the last 
thirty-five years has been weaker than any other in the 
world, the proportion of failures are well known to be 



204 



EXCHANGE. 



[book in. 



greater than anywhere else. The common estimate has 
been ninety in one hundred. There is nothing myste- 
rious in this result. It is the natural consequence of a 
fluctuating and unreliable currency. Notwithstanding this 
greater stability of the English currency, as compared with 
that of the United States, it is still so essentially defective, 
so alloyed or adulterated with the element of credit, that it 
produces in degree, though not in extent, the same evils 
suffered in the United States. The commerce of the vast 
empire of Great Britain is kept in a state of continual per- 
turbation. The " reserve " of the Bank of England is 
watched with the greatest solicitude : as it rises or falls, so 
every business man in the nation is affected. This has 
become more strikingly apparent within the last twenty 
years. The fluctuations in the bank rate of interest have 
been more frequent and violent than previously, and seem 
to be growing worse from year to year. 

We annex a Table VIII., showing the bank reserve for 
each year from 1844 to 1858, and the corresponding rates 
of interest charged by the Bank of England, together with 
a diagram, No 7, representing the same. 

Table VIII., showing the Rates of Tnterest each Year in the Bank of England, 
with the Amount of the Bank Reserve at the corresponding Date, from 1844 to 1858, 
inclusive, and the Suspensions of the Bank Act. 



1844. 
1845. 
1846. 
1847. 
1848. 
1849. 
1850 . 
1851. 
1852. 
1853. 
1854. 
1855. 
1856. 
1857. 
1858. 



Bank Reserve. 



8* millions 

6 

10 „ 

12i „ 
13 

7 „ 
14 „ 

6 

4 „ 

12 „ 

8 „ 
1J „ 

13* „ 



Suspension of Bank Act 



Suspension of Bank Act 



Bank Rate of 


Interest. 


21 


per 


cent. 


3i 


» 


„ 


3 




)( 


8 












3 






2* 


5) 




2i 


)) 


»> 


3 


1> 


» 


2 


>» 


i) 


b 


» 


?> 


H 


7> 


»» 


3i 


»> 


») 


4* 






10 


n 


» 


n 


i) 


>» 



NH. 



Reserve 
14 Miliums Sterling 

13 

12 

II 



RANK 01' ENGLAND 



ID 

9. 



7 
6_ 
5_ 
I 



ls5(! 



Banfc Resenre 



fftferrsf 
Percent 



Hale rf Interest. 



CHAP. XI.] EFFECTS OF A MIXED CURRENCY. 205 

Observe the correspondence between Diagrams No. 6 
and 7. The rate of interest in both countries is evidently 
affected by the same disturbing force, though in different 
degrees. 



EFFECTS OF MIXED CURRENCY UPON AMERICAN AGRICULTURE. 

Unfavorable as the influence of mixed currency is upon 
all branches of industry, the agriculture of the United 
States is especially injured by it, because, as a people, we 
have a large surplus of agricultural products, that must find 
sale in foreign markets. Whatever such surplus is worth 
for export, determines the price of the whole crop ; and 
the value or price is determined by its value or price in 
gold. Such products are virtually sold for gold. It is 
always a matter of choice with the merchant whether to 
send wheat,* for example, or gold, as a remittance. The 
produce of the farmer, then, must be sold at a gold stand- 
ard ; but all he purchases for himself and family is bought 
at currency prices. How much difference this may make 
is seen at the present time, when commodities in general 
are one hundred and twenty per cent above par, while gold 
is but forty. 

The currency is now (1865) a credit, or inconvertible 
one ; but we are to inquire whether the principle does not 
hold good at all times, under a mixed or partially converti- 
ble currency. We therefore refer to the statistical tables 
of the Financial Report of 1863, as heretofore, for prices, 
and construct a table which exhibits the price of flour and 
the price of cotton for fourteen years prior to 1860. We 
also give the general prices of certain commodities, as shown 
in our Table V., previously given (see page 178,) and also 
the volume of the currency, per capita, at corresponding 
dates : — 

* Wheat may be taken as an exponent of all agricultural products ex- 
ported. 



206 



EXCHANGE. 



[BOOK Etl. 



Table IX., shewing the Price of Flour and Cotton from 1846 to 1859, inclusive 
(14 Years), with the Currency per Capita, and General Prices at corresjxmding 
Dates. 









AS 










£i 


Is 


Teaks. 


© 9 


£" 


eg. 


8 h 


Teaks. 


© 3 


ti 




1846 . . 


$5.06 


7* 


$9.94 


$16.69 


1853 . . 


$5.77 


10J 


$13.65 


$22.47 


1847 . . 


667 


8 


9.38 


20.82 


1854 . . 


8.94 


9 


14.95 


20.84 


1848 . . 


5.96 


8i 


10.67 


16.53 


1855 . . 


8.76 


H 


13.93 


22 78 


1849 . . 


5.50 


8 


9.18 


16.45 


1856 . . 


6.42 


10* 


14.64 


25.02 


1850 . . 


5.55 


12 


10.39 


16.20 


1857 . . 


5.78 


14 


15.50 


25.13 


1851 . . 


4.52 


10 


11.86 


19.42 


1858 . . 


4.30 


13 


11.55 


21.92 


1852 . . 


6.00 


9 


13.31 


21.42 


1859 . . 


5.10 


Hi 


14.90 


22.11 



The foregoing table shows conclusively, that, while gen- 
eral prices conform remarkably to the existing quantity of 
currency, flour and cotton do not rise and fall with its fluc- 
tuations. Flour, for example, in 1846, with a currency of 
9.94, was at $5.06 ; while in 1851, when the currency had 
risen to 11.86, an advance of twenty per cent, flour was at 
$4.50, a decline of ten per cent. Cotton was at 12 cents, 
under a currency of 10.39, in 1850, and but 9 cents, under 
a currency of 14.95, in 1854. But we need not point to 
these facts ; they are quite apparent throughout the whole 
table, and show beyond cavil that the prices of agri- 
cultural products in the United States are not governed 
by its mixed currency, as other products are which the ag- 
riculturist must purchase for consumption. Hence he is 
always a sufferer, as compared with the manufacturer and 
all other classes whose productions are not exported ; for the 
commodities of the latter, while they are advanced in cost 
by currency inflation, are also, unless they come especially 
into competition with foreign products, correspondingly 
enhanced in price in the home market. 

Ordinarily, this operation of a mixed currency is not ap- 
parent to superficial observers ; but the effects are, never- 
theless, always as certain as at the present time, when they 
are seen by every one. 



CHAP. XII.] MIXED-CURRENCY FALLACIES. 207 

At the time we are writing, the people of the West are 
suffering prodigiously from the influence of a redundant 
currency. All they consume of purchased commodities 
they pay one hundred and twenty per cent advance upon ; 
while their products, wheat, corn, &c, can only be advanced 
about forty per cent, — the premium on gold. They feel dis- 
tressed, and clamor against the tariff, as they have much 
reason to do ; but they suffer a loss of ten dollars from the 
currency, to one from the tariff. Whenever they see this, 
the evil will be remedied ; for the agriculturists of the na- 
tion hold the political power of the country in their hands, 
and all this class of producers, East or West, North or 
South, in Maine or Texas, Florida or Minnesota, are alike 
interested in this matter. 

Again, agriculture is more disturbed by speculative op- 
erations than other branches of industry. Its products 
are great staples, the necessaries of life. They are not 
subject to quick decay ; hence can be monopolized and held 
for a rise of prices. The sudden and excessive expansions 
of a mixed currency afford great opportunities for opera- 
tions of this sort ; and no products, probably, are so much 
speculated upon as those of the farmer and planter. The 
profit of all this goes to those who can command the re- 
sources of the banks. The producers are far more injured 
than benefited by these unnatural disturbances of the 
market. 



CHAPTER XII. 

FALLACIES REGARDING A MIXED CURRENCY. 

Fallacy 1st. That, by means of mixed-currency banks, 
the capital of a country is greatly increased. 

Capital is the portion of wealth employed in reproduc- 
tion. Money is one form of capital. To the banker or 



208 EXCHANGE. [BOOK III. 

money-lender, it may be his entire capital ; but, to the mer- 
chant, manufacturer, or agriculturist, it is capital only as 
the instrument by which he obtains those commodities 
which constitute his main capital, upon which he does his 
work, and from which he makes his profits. 

Of the great mass of the world's capital, money is but a 
small fraction. Credit is no part at all. Capital, we have 
said, is that portion of wealth employed in reproduction. 
Money is that portion of capital which is employed in re- 
production, for the special purpose of effecting easily that 
exchange of values which itself confers value, because done 
by labor. 

To the greater part of mankind, money is only the means 
by which capital is obtained from those who have it. 

Now, were it not for mixed-currency banks, all the capi- 
tal loaned in the form of money would be reliable. Mixed 
currency, for the time being, takes the place of actual 
money, and becomes an instrument by which capital is 
transferred. But its nature is, as we have seen, to issue 
in greater volume than necessary for the wants of com- 
merce, and, by this, to disturb the business of the country, 
cause an unnatural rise of prices, an increase of imports, a 
decrease of exports, and finally a call for real money, which 
will cause the withdrawal of all the extra currency at the 
very moment when, owing to the increased indebtedness it 
has caused, it is more needed than at any other period. It 
will then be discovered that this excess was not capital, or 
actual value, but credit, in the guise of capital, which the 
mixed-currency banks had issued, and which they were 
compelled to withdraw when most wanted. 

Fallacy 2d. That mixed currency is cheaper than a value 
currency, more economical, and therefore more desirable, 

Specie costs much labor. Paper costs but little in com- 
parison : therefore, as it answers the same purpose, and is 
more conveniently handled, it confers a benefit. This is a 
popular idea. 



CHAP. XII.] MIXED-CURRENCY FALLACIES. 209 

Money, we have said, is an instrument, nothing else ; we 
do not eat, drink, or wear it. All tools, instruments, or 
appliances should be as cheap as possible, provided, ahvays, 
they are safe and efficient. It would be cheaper to have 
ploughs made wholly of wood. They would be lighter, and 
quite as handsome, as when made partly of iron. But 
would they be as useful; and, in the end, as profitable ? 

A paper cap is cheaper than one of leather or cloth ; but 
would it be as durable and comfortable ? If not, although 
in the first instance it costs less, it would not be desirable 
for use. The same principle applies to money. 

If what we have already said of a mixed currency is 
true, it is wanting in those qualities which would make 
it cheaper than a value currency. It does not discharge 
fully or perfectly a single function of money. It deranges 
trade, because it does not obey the laws of trade. It in- 
creases credit enormously, by its expansions, because it is 
itself credit ; and impairs it by its contractions when its 
own credit is blown upon. 

But the gain by this substitution of credit for value in 
the currency is insignificant, when compared with the great 
interests of trade. 

The average of paper circulation in the United States from 
1850 to 1859, inclusive, ten years, was not more than $6.25 
per capita. If from this we deduct the average specie per 
capita for the same time held by the banks, viz. $2.25, we 
shall have left $4.00, as the amount for each individual of 
credit circulation. On that amount, the saving, if any, is 
to be made. If we compute the interest at six per cent, 
we have twenty-four cents as the annual saving to each in- 
dividual by the use of credit currency ; a saving worth the 
attention of the statesman, if it could be properly and safely 
made, but paltry in comparison with the losses and disturb- 
ances incident to a mixed currency. 

In this connection, it seems proper to introduce a distinct 

14 



210 EXCHANGE. [BOOK III. 

calculation of the damage occasioned to the people generally 
from this cause. 

On the 7th of January, 1841, Congress requested of the 
Secretary of the Treasury, first, a return of the losses sus- 
tained by the government from using hanks as depositaries, 
and by its connection generally with them ; and, secondly, 
the amount the people had lost on account of the banks and 
their issues. The replies wore in substance as follows : * — 

Losses sustained by government to the year 1837 . . $15,492,000 

„ sustained by the public 108,885,721 

„ by bunk suspensions and by depreciated notes . 95,000,000 

„ by destruction of bank-notes 7,121,332 

„ by conn fcerfeits beyond losses by coin . . . . 4,444,444 
„ by fluctuations, revulsions, sacrifices .... 150,000,000 

Aggregate $380,943,497 

Such wore the estimates of the losses to the people and 
the government resulting from the use of a mixed currency 
up to 1841. There can be no doubt, in the minds of men 
who were in business during the period covered by these 
figures, that they are so far correct that they fail only by 
reason of being set too low, particularly those of the last 
item ; viz., " losses by fluctuations, revulsions, and sacrifices." 

Twenty-four years have elapsed now (1865) since the 
foregoing table was prepared ; and, during that time, the cur- 
rency has been doubled, the country lias passed through 
several contractions and one or two explosions, and has 
suffered as much probably as in the preceding period. If 
so, the total loss would amount to seven bundled and sixty 
million dollars. But suppose it to be only five hundred mil- 
lion dollars : that amount would furnish gold and silver 
currency sufficient, not only to supply our wants at present, 
but for generations to come. 

Some have supposed that a great saving is made by the 
use of paper money instead of coin. But it is not necessary 

* See " Merchants' Magazine," vol. 1. p. 9. 



CHAP. XII.] MIXED-CURRENCY FALLACIES. 211 

to have a mixed currency in order to avoid abrasion of the 
coin. A mercantile currency, based wholly on specie, would 
equally avoid loss from this cause, and yet secure all the 
advantages of a value currency. 

But, in fact, the abrasion of paper currency is far greater 
than that of gold; that is, it costs more to keep out one 
hundred dollars of currency than it does to keep out 
one hundred dollars in coin. Gold and silver circulate 
themselves ; but it requires a formidable machinery to circu- 
late paper promises, — a machinery far more costly than the 
slow wear of the precious metals. No banker would venture 
to say that a paper currency can be maintained for one- 
twentieth of one per cent per annum. 

It may be said that the banks gain a considerable sum by 
the accidental destruction of their notes. Doubtless ; but 
what they gain somebody loses. The amount estimated to 
have disappeared in this manner up to 1841, as we have 
seen in the table just cited, was put at seven millions of 
dollars. A very large proportion of this fell on the poorer 
classes, as also do the losses by counterfeiting. 

But, if we would comprehend the question of economy, 
we must appreciate the expense of maintaining all the offi- 
cers, managers, and subordinates of fifteen hundred banks, 
with all the incidental charges of their operations. At a 
moderate calculation, this would not average less than four 
thousand dollars to each bank, or a total sum of six million 
dollars per annum. 

This argument of economy in the use of credit money 
was presented by Dr. Adam Smith eighty years ago. Even 
then the danger was apparent, though the system had not 
been developed to its proper character and consequences. 
Had the writer witnessed the great convulsions from 1797 
to 1857, he would have dismissed, as wholly an idle fancy, 
the scheme of substituting the " Daedalian wings " (say, 
rather, the Icarian wings) of credit for the " solid ground " 
of value. He says : — 



212 EXCHANGE. [BOOK III. 

" The gold and silver money which circulates in any country 
may very properly be compared to a highway ; which, while it cir- 
culates, and carries to market all the grass and corn of the country, 
produces itself not a single pile of either. The judicious operations 
of banking, by providing, if I may be allowed so violent a metaphor, 
a sort of wagon-way through the air, enable the country to con- 
vert, as it were, a great part of its highways into good pastures and 
cornfields, and thereby to increase very considerably the annual 
produce of its land and labor. The commerce and industry of the 
country, however, it must be acknowledged, though they may be 
somewhat augmented, cannot be altogether so secure, when they 
are thus, as it were, suspended upon the Dredalian wings of paper 
money, as when they travel about upon the solid ground of gold 
and silver. Over and above the accidents to which they are ex- 
posed from the unskilfulness of the conductors of this paper money, 
they are liable to several others, from which no prudence or skill 
of those conductors can guard them." 

This comparison is full and just in every particular. 
Nations have been trying to make a small saving by dis- 
pensing with the vital condition of all their wealth. These 
political farmers have always ached to be ploughing up and 
seeding clown the very highways of their industry; far 
more intent on this than to improve the land already at 
their disposal. " A wagon-way through the air " is no 
violent, but rather a modest, metaphor for the schemes by 
which they propose to make nothing do the work of some- 
thing. A man might as reasonably try to make a saving 
by selling his own blood as a nation gain aught by robbing 
its commerce of money. It is an attempt to cheat the house 
of its foundation, the animal of its food. 

Nor is it even economy, at the first and on the face. Ex- 
perience has shown that this extensive system of aerial 
railways is rather more costly in its outlay than the more 
natural one that rests upon the ground. Industrial bal- 
looning has always been difficult and dangerous. 

Fallacy Zd. That the use of mixed currency has been 
the cause of the great prosperity of the United States. 



CHAP. XII.] MIXED-CURRENCY FALLACIES. 213 

This is, doubtless, a very idle assumption, unworthy of 
discussion. Yet thousands are influenced by it. 

A coincidence is taken, by force, for a cause. 

The United States have prospered greatly, and at the 
same time there has been a large consumption of intoxica- 
ting drinks. Surely this does not prove that the prosperity 
of the country was caused by the use of liquor. 

Has the country flourished by reason of, or in despite of, 
such use ? Intoxicating liquors stimulate men to greater 
effort ; therefore they increase production. Mixed currency 
stimulates exchanges, increases prices, promotes specula- 
tions ; therefore it is favorable to production. 

Such is the reasoning, and it is equally good in each case. 
In both, the misdirection of effort and the certain depression 
of energy are kept out of sight. Mixed currency never 
gave strength or wisdom or skill or economy to any hu- 
man being, and therefore never can have increased the 
products of the country, or enlarged its wealth, in any man- 
ner whatever. Its unnatural excitements are followed by 
unnatural prostration. Men do not work more, but they 
trade more, speculate more, and squander more, during the 
flood-time of an expansion. More is expended for foreign 
luxuries ; there is more extravagance and waste, which 
superficial observers take to be indications of prosperity. 
In the time of reckoning, trade is as much depressed as it 
was falsely stimulated. 

Fallacy 4th. That there is not gold and silver enough in 
existence to form a currency adequate to the rapidly ex- 
tending operations of commerce ; and therefore resort must 
be had to paper substitutes. 

Twenty years ago, this was regarded as an unanswerable 
argument in favor of credit currency. The recent discov- 
eries of apparently inexhaustible mines, and the immense 
production already realized, have to a great extent silenced 
the senseless clamor once raised on this point. Yet the 
assertion is as true now as ever. Only about one-half of 



214 EXCHANGE. [BOOK III. 

the wliolo amount of precious metals in possession of man, 
from the fifteenth to the middle of the nineteenth centuries, 
was required for coin ; the balance remaining in plate and 
ornaments, mostly in Europe and the East. 

The reason of such general error on this point is found in 
the totally inadequate ideas prevailing as to the amount of 
currency needed for trade. People are informed, that the 
annual products of the United States, for example, are, say, 
four thousand millions ; and they fancy that four thousand 
millions of currency, or something near that sum, is neces- 
sary to transfer this immense production : whereas it is 
true that a very small fraction of the amount is required. 

Mr. Col well, ill his " Ways and Means of Payment," esti- 
mates that all the securities issued in the United States, 
including " promissory notes, bank-notes, bank credits, and 
other currency, — in short, all which intervene between 
buyer and seller," — amount to one thousand million dol- 
lars every three months, or four thousand million dollars 
per year. Yet we know that all this is wiped off with, at 
the most, not more than four hundred million dollars of cur- 
rency, or about one-tenth of the aggregate indebtedness. 

Now, that the people of the United States could not com- 
mand sufficient gold to furnish a currency equal to their 
wants is preposterous, since the yearly production of Cali- 
fornia, for at least twelve years, has amounted to fifty mil- 
lions,^ — in all, say, six hundred millions of gold ; a sum about 
double our requirements for a sound currency. 

Instead of using this, we find that the amount of specie 
in all the banks in 1848, the time of the discovery of the 
gold mines, was forty-six millions, and that on the first of 
January, 1860, the amount was eighty-three millions ; show- 
ing, that, of all the gold obtained from California, only thirty- 
seven millions, or about one-sixteenth, had found its way 
into the bank currency of the country. In the mean time, 
the total exports of the nation had increased from one hun- 
dred and fifty-four to three hundred and sixty millions, or 



CHAP. XII.] MIXED-CURRENCY FALLACIES. 215 

more than double. Again, the amount of specie per capita 
in bank for ten years prior to the discoveries, say from 
1839 to 1848 inclusive, was $2.07; while for the succeeding 
ten years, 1849 to 1858 inclusive, it was but $2.10, — showing 
an actual gain of but three cents to each individual, notwith- 
standing the accessions of gold to the amount of six hundred 
millions, or twenty dollars per capita. 

What had become of this gold ? It had been exported. 
Why ? Because the credit currency of the country expelled 
that part, which, but for itself, would have formed a reliable 
and sufficient currency for the nation. The actual per- 
centage of specie to currency from 1840 to 1849, ten years, 
was twenty per cent ; from 1850 to 1859, ten years, only 
seventeen per cent, — showing that the quality of the cur- 
rency was actually poorer after than before the gold discov- 
eries. 

But, while it is thus seen to be practically untrue that 
there is not enough of the precious metals to furnish all 
the currency needed in the most extended commerce, it is 
plainly false in theory. We have already shown, that, as 
the currency is increased, prices advance; so that money 
becomes no more plenty by augmenting its quantity. 

John Stuart Mill says: "The uses of money are in no 
respect promoted by increasing the quantity which exists 
and circulates in a country, the service it performs being 
as well rendered by a small as by a large aggregate amount. 
Two million quarters of corn will not feed so many persons 
as four millions ; but two million pounds sterling will carry 
on as much traffic, will buy and sell as many commodities 
as four millions, though at lower prices." 

Sufficient has been said in refutation of a fallacy, which, 
though popular, is really not entitled to much consideration. 

Fallacy 5th. That mixed-currency banks are particularly 
favorable to those who have little capital, and must, of ne- 
cessity, depend upon credit, since they increase the facilities 
for obtaining capital. 



216 EXCHANGE. [BOOK III. 

"Whatever impairs credit and increases the risk of loaning 
must be unfavorable to those who most need to borrow. 
Other things being equal, it must be easier to get credit in 
a community where only one in twenty fails than where 
one in five fails ; the less the risk, the less the hesitation in 
giving credit. Now, does the credit money of a mixed cur- 
rency diminish the risk of general credits ? Far from it. 
Common-sense teaches, and statistics prove, that the haz- 
ards of credit must be just in proportion to the credit money 
of any country. Instead, therefore, of being favorable, it is 
adverse to all persons wanting the use of capital. The haz- 
ards of credit in the United States are at least four times as 
great as they would be under a value money currency. 

The more credits are extended, the more difficult it is for 
persons of limited means to do any thing on their own ac- 
count. Unless an interest can be secured in some large 
banking institution, business on a large scale is impossible, 
because the manufacturer or dealer will give long credit, if 
he can get credit at the banks. If it be true, as we have 
seen, that introducing credit into the currency extends all 
the indebtedness of the country, this must operate to the 
disadvantage of all men of limited capital. 

That all this is quite unnecessary, is proved by the con- 
dition of things in the years 1863 to 1865, when no credits 
wore given, all transactions being essentially on immediate 
payment. The war effected this, by destroying all confi- 
dence ; but the fact that the business of the country was 
carried on without extensive credits shows that such were 
always unnecessary. 

A mixed currency, far from being advantageous to persons 
needing credit, has an entirely opposite influence, and is 
constantly tending to reduce the number of those who can 
obtain sufficient to participate in the profits of business. 

Fallacy 6th. That, without a mixed currency, banks could 
not exist, and all the advantages now derived from them 
would be lost. 



CHAP. XII.] MIXED-CURRENCY FALLACIES. 217 

Such is the general impression among the masses of the 
people. Propose to them the expulsion of the credit ele- 
ment; that is, to forbid the issue of notes beyond the specie 
in hand : the reply comes at once that there would be no 
object in banking, and we should have no banks. 

This view of the matter arises from the fact that we have 
never had in the United States any banks that did not man- 
ufacture currency out of their credit. We have therefore 
come to regard the two things as inseparable. But this is 
an entirely erroneous view. Banking and currency-making 
are two perfectly distinct functions, though here uniformly 
united. 

Banking may be carried on to any degree, and in the 
most profitable manner, without the issue of a single bank- 
note. This is done in Great Britain, to a wonderful extent, 
by joint-stock and private banks. Only a very small pro- 
portion of all the banks in the United Kingdom issue their 
own notes; yet they make dividends so large as to aston- 
ish us. 

As an illustration of this species of banking, we mention 
the fact, that, while the Bank of England, with a capital of 
fourteen millions, has deposits, public and private, of but 
twenty millions on an average, the three principal banks 
of London, with an aggregate paid-up capital of only 
£2,320,000, have on deposit £46,158,105; and that, while 
the Bank of England declares a dividend of about six or 
seven per cent, these banks make an average profit of about 
thirty per cent, and furnish the commercial and manufac- 
turing interest a much larger amount of capital than the 
Bank of England itself. And yet they manufacture not a 
dollar of currency. We present the following statement of 
their condition : — 

Net profits Percentage 
Paid-up capital. Deposits. fur G mos. per ami. 

London and Westminster £1,000,000 £15,629,095 £147,816 29.56 

Union 720,000 16,472,279 114,324 38.11 

London Joint Stock . . ' 600,000 14,056,731 80,573 26.86 

£2,320,000 £46,158,005 £342,713 



218 EXCHANGE. [BOOK III. 

Of all kinds of banks, with their branches, there are, in 
the United Kingdom, about five thousand, a small portion 
only of them being banks of issue. Yet, as a general rule, 
all make large dividends. Such as are regarded as " suc- 
cessful," divide from fifteen to twenty-five per cent. It is a 
curious and instructive fact, that, while the average rate of 
interest is there only half as great as in the United States, 
the bank dividends are much greater. The largest divi- 
dends are made by those banks which issue no notes what- 
ever. 

This fact gives sufficient proof, if any were needed, that, 
in order to make large dividends, it is not necessary for a 
well-established, well-managed bank to manufacture cur- 
rency. 

Banks belong to civilization. A bank is an institution 
intrusted by one class of persons with money to loan 
another class. The existence of such institutions implies 
the existence of capital and confidence; and these indicate 
culture and social elevation. Banks are labor-saving ma- 
chines, of vast power and utility. Their legitimate purpose 
is simply to facilitate the use of money, to make it more 
effective in exchange, to give it greater activity in circu- 
lation. This they accomplish. A large amount of capital 
is collected in one building, fitted especially for the purpose. 
This gives greater security and convenience than if the same 
were scattered abroad in many hands, and accidental places 
of keeping. The lender knows where to go to dispose of 
his surplus funds ; the borrower, where such funds can be 
obtained. The bank introduces these parties, who otherwise 
would probably remain unknown to each other. 

No well-informed man can be opposed to banking insti 
tutions conducted in a proper manner. It would be as 
reasonable to object to railroads. 

Banks, until a comparatively recent period, were as harm- 
less as they were useful. They did nO injury to any intei- 
est, but benefited all. When confined to the loaning of 



CHAP. XII.] MIXED-CURRENCY FALLACIES. 219 

actual values, to the negotiation and collection of notes and 
bills of exchange, and to the reception and transfer of 
money, they performed an immense service to the world. 

But when they undertook, not only to loan money, but to 
make it, to issue credit in the form of notes promising value, 
their character was changed. 

The Bank of Hamburg, which has existed since 1619, 
never promised a dollar which it did not hold in its vaults. 
It never expanded the currency, and therefore never had 
occasion to contract it. It has never suspended specie pay- 
ments for an hour,* and, while so conducted, never will. It 
has created no panic, and has in no way disturbed the busi- 
ness of the city. It has conferred incalculable benefits on 
European commerce, while contributing steadily to the 
growth and prosperity of Hamburg. 

Confining itself to the loan of its capital and of money 
actually left on deposit, to the transfer of surplus funds, 
and to the negotiation of commercial paper, a bank can, if 
honestly and ably conducted, make good dividends, and 
perform valuable services for the community, and furnish 
the public with all the notes their convenience and that 
of the banks require. 

Fallacy 7 th. That a mixed currency can be effectually 
regulated by law. 

Many of the mischiefs arising from a mixed currency are 
so obvious that all persons desire their removal, and nat- 
urally resort to legal enactments for that purpose. The 
statute-books of every State in the American Union contain 
laws for the regulation of mixed-currency banks. Commis- 
sioners have been appointed in many States, and a Bureau 
of Currency established. Ingenuity has been burdened to 
devise regulations by which these evils may be removed or 
modified, — with what success ? 

There is but one defect in a mixed currency ; and that is, 
it wants the element of value. There is no sufficient rem- 

* Various reports in 1857 to the contrary notwithstanding 



220 EXCHANGE. [BOOK III. 

edy, but to supply this, by providing that banks shall issue 
no promises of their own for which they have not in posses- 
sion the actual values they promise. But this would he to 
change the whole system, to make the currency mercantile, 
and to cut off all the profits arising from the issue of bank 
debt as currency. The only complete remedy, then, is res- 
toration ; that is, a return to the original design and purpose 
of banking. 

Fallacy 8th. That it is for the interest of the public, that 
the banks, in times of panic or stringency, should be ena- 
bled to " stave off" suspension. 

On the contrary, this can be obviated only to the misfor- 
tune of the business community. A severe pressure for 
money, as in the United States in 1847, 1851, and 1854, is 
experienced, and yet the banks do not suspend. But how 
do they avoid it? By throwing the strain upon the mercan- 
tile and business community. This they can always do to 
a limited extent, and thus maintain their own credit ; but it 
is done at an enormous amount of embarrassment and loss 
to all engaged in business affairs. 

The banks may not only escape damage, but may even 
profit very much by a pressure, if it does not come to be a 
panic ; for it greatly enhances the rate of interest. The rate 
of interest in the Bank of England, from 1848 to 185G, did 
not average three and a half per cent. In 1857, when there 
was a severe pressure, the bank was able to obtain ten per 
cent. It had a harvest of profit. 

The banks of the United States had a similar opportunity 
in 1847, when the price of money "in the street" (for we 
have no means of knowing what it was on an average in 
bank) was up to eighteen per cent ; in 1851, when it went 
up to sixteen; and in 1854, when it rose to eighteen. In 
all these cases, the banks profited by the distress they had 
themselves created ; but, in 1857, the pressure became over- 
whelming, and, after having run the street rate up to three 
per cent per month, they suspended payment. 



CHAP. XII.] MIXED-CURRENCY FALLACIES. 221 

If it were necessary, we might multiply instances from 
the history of the mixed currency of the United States and 
England of the same kind. A semi-revulsion is sure to 
take place, under such a currency, every three or four years, 
and a general break-down once in about nine or ten. 

The greater strength of the British banks, together with 
the temporary suspension of the Bank Act of 1844, ena- 
bles the Bank of England to throw the sacrifices incident to 
a great pressure more entirely upon the public than can be 
done in this country. Indeed, since the law of 1844 just 
referred to, the bank has increased its average rate of in- 
terest, as we have seen, very much. 

Practically, mixed-currency banks expand as often and as 
much as possible ; and, when the re-action comes, hold on 
to specie payments and a high rate of interest, until t\v, 
bankruptcy of their debtors begins to be so alarming as to 
endanger their own securities. 

They then suspend, allow their debtors to pay up in the 
notes they cannot redeem in specie, and thus settle the in- 
debtedness of themselves and the public. There is no plan 
or design to do this ; but such is the natural result, and, on 
the whole, a highly satisfactory one to the banking interest. 

Fallacy 9ih. That, whatever the effect upon other classes, 
bank stockholders at least are made richer by an expansion 
of the currency. 

That this is not universally true will appear on exam- 
ination. 

An expansion of the currency raises prices : that we take 
to be indisputable. If so, the stockholder may be made 
richer or poorer by the cause that increases his bank 
dividends. 

For example : suppose he has an income from various 

sources of $5,000 

And from bank stock 1,000 



Total income . $6,000 



222 EXCHANGE. [BOOK III. 

In consequence of an increase of circulation by the banks, 
He gets an increase of $500, equal to fifty per cent on his 
bank dividends, making his whole income -$0,500. But 
prices and commodities have advanced twenty-five per cent 
in consequence of the inflation. What he would have 
bought before for $6,000, now costs him $7,500. The re- 
sult, then, is, that the bank stockholder has gained $500 in 
his dividends, and lost $1,500 in his purchases ; so that 
he is actually $1,000 poorer, reckoning the real satisfactions 
or commodities, &c, which he obtains from his income. 

There is nothing fictitious in this statement. The natural 
and certain operation of an inflation of currency affects in 
just this way all who hold bank stocks, but have the main 
part of their income from other sources. But we can sup- 
pose a case in which the stockholder would gain by ex- 
pansion. 

For example : he has an income from bank stock of . . $4,000 
From salary 1,000 

Total income $5,000 

Now, by expansion, his dividends are increased fifty per 
cent, as before ; and his income stands : — 

From bank stock $6,000 

From salary 1,000 

$7,000 

Prices have advanced, as before, twenty-five per cent, so 
that what he could have bought for $5,000, now costs him 
$6,250 ; but, since his income has increased to $7,000, he is 
a gainer by $750. 

These two cases present, it is believed, a fair illustration 
of the effects of an increase of dividends upon bank stocks 
occasioned by an inflation of the currency. It is seen, that, 
if a man's income is derived mainly from such sources, he 
may gain by an increase of his dividends, notwithstanding 
the rise in price. But few persons are so situated. Nearly 



CHAP. XII. J MIXED-CURRENCY FALLACIES. 223 

all capitalists have a variety of investments, bank stock 
being only one of them ; so that, to the great mass of stock- 
holders even, the gain by increased dividends is more than 
counterbalanced by the loss from enhanced prices. 

Who gains by fictitious currency ? 

But it may be asked, if stockholders do not gain by bank 
expansions, who does ? There is an increase of dividends : 
who gets the advantage ? 

This inquiry brings us face to face with one of the prime 
mysteries of currency, and, indeed, of political economy. 
" Who gains by fictitious currency ? " Before answering 
this, we will ask, What is gained by a currency not con- 
sisting of actual value ? We answer, nothing but price. 
Prices are changed by it. Values are not created : they 
remain the same. By the change in the standard or 
measure from a value to a mixed currency, prices no longer 
accurately determine values. Prices are increased. Those 
who hold commodities while prices are advancing, gain by 
such an advance. Debtors may discharge their obligations 
with less value. Speculators may make favorable opera- 
tions. The value of every commodity has been interfered 
with ; the integrity of every contract to pay value has been 
impaired. Some are constantly gaining ; others, losing : 
both parties, it may be, unconscious of the cause of such 
prosperity or adversity. " Times " are said to be good or 
bad, as men gain without earning, or lose without a fault. 
Here we have the answers of the questions, — What is 
gained by a mixed currency ? Who gains by it ? 

Such is the " consummation" of mixed currency. " It is 
a grand system of insidious swindling." So said " Hard- 
castle " (who was no other than Mr. Page of the Bank of 
England) forty years ago ; and what that shrewd observer 
then discovered is apparent now to all who enter into a full 
examination of the subject.* 

* Richard Cobden repeated this remark of Mr. Page to the author at 
Manchester, more than twenty years since, with his emphatic approval. 



224 EXCHANGE. [BOOK III. 



CHAPTER XIII. 

IV. MERCANTILE CURRENCY. 

We have thus far examined three different kinds of cur- 
rency. 1st, Money, consisting of the precious metals : this 
we have found to be admirably adapted to the wants of 
trade, except that, for large exchanges, it is too cumber- 
some, requiring much labor and time in use. 2d, Incon- 
vertible paper, or credit currency, which, we have seen, never 
has been, and in the nature of things never can be kept at 
par with coin, and is therefore highly injurious when intro- 
duced into commerce. 3d, A mixed currency, or partly 
convertible paper, which, as it is .constantly varying in 
quality and quantity, cannot be relied on as a medium of 
exchange or a standard of value. 

We now come to the consideration of a mercantile, or 
substitute currency. 

It is quite apparent that a currency is needed which shall 
combine all the advantages of the two kinds first mentioned, 
without the disadvantages which we have seen to be insep- 
arable from the third. We want the reliability of coin and 
the convenience of paper. With these perfectly united, 
there is nothing more to desire. We have no occasion to 
increase the currency beyond its natural volume, because 
that would impair the standard of value. We wish only to 
have so much currency, and of such a kind, as the laws of 
trade demand, and, if undisturbed, will always secure. 

Is such a currency practicable ? 

In answering this question, we remark that it would not 
be an entire novelty, since experiments of this character have 
been made most successfully upon a large scale, and extend- 
ing over several centuries. 



CHAP. XIII.] MERCANTILE CURRENCY. 225 



THE FIRST SUBSTITUTE CURRENCY ESTABLISHED. 

In the early part of the fourteenth century, the Bank of 
Genoa, or House of St. George, was established, especially 
for the management of the public debt. But, in addition, 
the bank performed all such services as were required by the 
existing wants of trade, at a period when Genoa was com- 
mercially the centre of Europe. Of course, its operations 
were on a gigantic scale. Its affairs were conducted with 
the greatest skill and fidelity, and were continued from its 
foundation up to the time Genoa was united to the French 
Empire, " when the bank was abolished, and the rentes, 
3,400,000 Genoese lire, which they owed their creditors, 
were transferred to the account-books of France." 

This bank, like the Bank of England, had its stock in- 
vested in the public debt ; but it received deposits of gold 
and silver, for which it gave credit to the depositor. These 
deposits, being easily transferable, were employed largely in 
commercial transactions. 

The bank also issued bills extensively ; but " these bills and 
deposits represented coins of full weight and value, and were 
payable on demand in such corns." The common currency 
of Genoa, for retail business and minor transactions, was 
coin. 

Thus the Genoese were furnished with a currency per- 
fectly adapted to their wants. It had all the reliability 
of specie, with the convenience of a paper circulation, and 
conferred immense advantages upon the trade of the city for 
more than five hundred years.* 

The Bank of Amsterdam was established in 1609 as a 
bank of deposit, receiving gold and silver coins of all denom- 
inations and all nationalities, ascertaining their exact value, 
and passing the amount to the credit of the depositor, or 

* For an interesting account of this bank, see " The Ways and Means of 
Payment" (p. 311 et seq.), by Stephen Colwell, of Philadelphia. 

15 



226 EXCHANGE. [BOOK III. 

giving him a receipt (recipisse) for the same. These re- 
ceipts passed from hand to hand, and formed a circulating 
medium for large monetary transactions. 

The Bank of Hamburg was established in 1G19. Like 
that of Amsterdam, it is a bank of deposit ; and all payments 
are made by checks' in the transfer of receipts. It exists at 
the present day. It never promises more coin than it has 
in its vaults. It is under the guardianship and guaranty 
of the city. It has never deranged trade by contraction or 
expansion. It has always been found reliable. It has con- 
tributed greatly to the prosperity of the city, and the conve- 
nience of all connected with Hamburg in trade. At the 
same time, it has paid a considerable and constant revenue 
to the city, a small agio or premium being charged on all 
deposits. 

We have referred to these individual banks, not to give a 
history of their operations, but to show that the essential 
principle of a substitute currency has been long recognized, 
and thoroughly tried in practice. The Bank of Genoa seems 
to have developed this most fully. Yet none of them would 
afford a perfect model for the present age. 

To keep gold and silver coin in bank, while they are per- 
forming all their functions outside, with the perfect accu- 
racy and vastly augmented force, — this is what a mercantile 
currency seeks to realize. It is beyond doubt that this can 
be more effectually done in the present, than in any preced- 
ing age, since confidence and intelligence are more general 
and controlling. 

England affords the best illustration of the necessity for 
such a currency at the present day, when the commerce of 
the world is perhaps one hundred times greater than when 
Genoa was its chief mart. The monetary condition of Eng- 
land is peculiarly appropriate in this connection, because 
its present currency is probably the best in quality of all 
the mixed currencies, and one with which the public gener- 
ally are well acquainted. Yet, notwithstanding this supe- 



CHAP. XIII.] MERCANTILE CURRENCY. 227 

riority, we find the currency, on which depend the trade and 
commerce of the British Empire, in a state of continual fluc- 
tuation, a matter of unceasing solicitude : the bank reserre, 
by which its discounts must be governed, varying from ten 
millions in 1846, to one and a half millions in 1847 ; 
twelve and a half millions in 1849, to four millions in 1854 ; 
, one and a half millions in 1857, to thirteen and a half mil- 
lions in 1858; with corresponding variations in the rates 
of interest, as seen in our Diagram No. 10. 

"Why all this fluctuation and anxiety ? Why this constant 
watching of the amount of bullion in bank ? Why this 
nervous solicitude about the reserve ? 

There is only one reason ; and that is, that the Bank of 
England has issued from ten to fourteen millions sterling 
of notes, for which it holds no specie ! That is all the diffi- 
culty. It has disturbed the laws of value, by issuing that as 
money which had only the promise of value ; and, conse- 
quently, has expelled the actual value from the country in 
which it was needed. 

And what does the Bank of England gain by all this ? 
Why, the interest upon all the excess of its notes over the 
bullion in bank ; that is, if its notes are twenty millions, and 
it holds eight millions of specie, then on twelve millions it 
obtains interest, which, at say four per cent, as an average, 
is equal to four hundred and eighty thousand pounds per 
annum. So, then, it is for this paltry consideration that the 
currency of Great Britain is kept in constant fluctuation, 
and the business community in continual anxiety. This 
gain is equivalent to about fourpence per head for the pop- 
ulation of the nation. Yet for this the public must, on an 
average, suffer to the amount of many millions per annum. 

The people of the United States, having a much larger 
proportion of the credit element in their currency, suffer 
still more. 

The remedy for all these evils is a very simple one, and 
perfectly feasible whenever government sees fit to make the 



228 EXCHANGE. [BOOK III. 

needful enactments. Not only so, but, from the nature of 
the case, there need be no violent change. The experiment 
may be made as cautiously as the most conservative can 
desire. 

If it be assumed that the banks of the United States have 
■usually twenty per cent of specie, then, if Congress should 
require an annual addition, to this proportion, of ten per 
cent, it would require a period of eight years to bring the 
amount up to the proposed limit. That it would secure one 
of the grandest results to all the great industrial and com- 
mercial interests of society ever known, there cannot be the 
slightest doubt. 

If the principles we have previously laid down, and the 
practical results which follow, are such as we have stated, 
then no one nation need to hesitate in making this experi- 
ment for fear that other nations may not follow their exam- 
ple ; for the community which has the soundest currency 
will, other things equal, have the most profitable industry 
and the most advantageous commerce. 

With such a currency, as there will be no inducement to 
issue notes further than convenience demands, none of a 
less denomination than ten dollars will probably be issued. 

The Bank of England issues, we must bear in mind, no 
notes less than five pounds (twenty-five dollars). In Scot- 
land and Ireland, notes are circulated as low as one pound ; 
and it is found that two-thirds of their circulation consists 
of these notes. Yet there is no more occasion for one-pound 
notes in Scotland and Ireland than England. The only re- 
sult is, that the bankers make profits on their credit issued 
in those notes, which the people pay for, but for which they 
receive no benefit whatever ; while all their industrial and 
trading interests are rendered more unstable and fluctuating 
by the more sensitive currency. 

In Massachusetts, where notes are issued as low as one 
dollar, it has been found from statistical returns that more 
than twenty per cent of the whole circulation was of notes 



CHAP. XIII.] MEECANTILE CURRENCY. 229 

under five dollars. The exclusion of these notes alone 
would reduce the credit element one-fifth. If all under ten 
were excluded, the paper circulation would be reduced at 
least as much more. If such a result would follow, then, 
taking the whole currency of the United States as it was in 
1857, when the circulation was largest, and amounted to 
two hundred and fourteen millions, if we deduct from that 
amount forty per cent, equal to eighty-five million and six 
hundred thousand dollars, we shall have near one hundred 
and twenty-eight millions as the paper currency of the coun- 
try, and that would represent an equal amount of gold in 
the banks ; while all the rest of the currency of the nation 
would be in specie, in the hands of the people. But there 
need be no legal restriction whatever upon the issue of such 
a currency, and it matters not how voluminous it may be ; 
since it will be composed in fact of value money, will 
obey the laws of value, and, of course, will regulate itself. 
There would then be no expansions or contractions, except 
from the legitimate operations of trade ; and the currency 
of the nation would be perfectly sound. Notes may be safely 
issued, of any denominations, and to any amount ; still it 
would be desirable that no small notes should be put out, 
because it is better that the people should have the coin, so 
far as practicable and convenient, in their own possession, 
rather than that it should be needlessly accumulated in 
banks, where it would be more exposed to danger in case of 
a popular outbreak, or a financial coup oVStat. 

That legitimate banking may be made sufficiently profit- 
able under such a system, we have seen in the case of the 
joint-stock banks of England. All banks, like them, should 
be authorized to receive deposits, and allow such an interest 
upon them as they might choose to pay. If there were no 
issue of promises as currency, which in the nature of the 
case it was impossible for them to make good, there would 
be no danger in allowing them to borrow and loan money 
on any terms they pleased. To attempt to control the 



230 EXCHANGE. [BOOK in. 

operations of such banks would be as useless and absurd 
as to attempt to regulate the trade in flour or cotton. 

There would be no occasion to enact that such a currency 
should be received in payment of dues. It would take care 
of its own reputation. It would be good as gold, and easier 
in use ; and it therefore would circulate itself. Of such a 
currency it might be said, in the language of Mr. Burke, 
" It is of value in commerce, because in law it is of none." 

The transition from an unreliable currency, like that 
of the United States and England, to a sound mercantile 
currency, can be made so gradually as not for a moment to 
retard or interrupt the course of business. It would only 
be necessary to require that the proportion of specie to cir- 
culation shall be gradually increased from time to time, until 
the final exclusion of credit, as an element of the currency, 
shall be effected. 

If, in carrying such a measure into practical operation, it 
should appear that there were banks which could not make 
good dividends, such institutions would be discontinued of 
their own choice, as not actually required by the wants 
of the business community. Their capital would be paid 
back without any essential loss to the stockholders. Those 
who were concerned in their management would of course 
be obliged to seek other employments, more- beneficial to 
the country, and perhaps equally so to themselves. The 
amount of disturbance so produced would not exceed that 
occasioned, many times, by the invention of a new descrip- 
tion of machinery. 

Much has been said, at different times, of the desirable- 
ness of free banking. Of the propriety and rightfulness 
of allowing any person who chooses to carry on banking, as 
freely as farming or any other branch of business, there can 
be no doubt. But it is not, and can never be, expedient or 
right to authorize by law the universal manufacture of cur- 
rency. While banking, as at present, means the issuing of 
inconvertible paper, the more it is guarded and restricted 



CHAP. XIII.] MERCANTILE CURRENCY. 231 

the better. But when such paper is forbidden, and only 
notes equivalent to so much coin are issued, banking may- 
be as free as brokerage. The only thing to be assured 
would be, that no issues should be made except upon specie 
in hand. With this restriction, it is plain that no banker 
would wish to issue a circulation, unless for his own con- 
venience in transacting business. But, in truth, there is 
not the slightest reason why any banker, making loans, 
should engage in the manufacture of currency. It no more 
appertains to his vocation than to that of the merchant. 
On the other hand, there is the most manifest impropriety 
and danger to himself and the public in his doing so. His 
business leads him, of necessity, to incur great risks ; and 
this being well known, as soon as failures become frequent, 
as they will when there is a great pressure for money, the 
banker will be suspected, and his depositors begin to with- 
draw their funds, at the very moment when he is least able 
to spare them. All this is inevitable ; and therefore no one 
taking such risks, and exposed to such contingencies, should 
be allowed by law to issue his promises as money. 

Fortunately, while it is thus improper that bankers or 
banking institutions should be intrusted with this impor- 
tant function, there is not the slightest necessity for it. 
Government very properly certifies to the weight and fine- 
ness of the national coin ; and it is equally incumbent upon 
the government to certify to the soundness of the paper 
circulation, which convenience requires instead of the coin 
itself. It should receive the gold of the people, and give 
its certificates therefor; and those certificates (of all the 
denominations required) would form a circulating medium, 
perfectly reliable, unfluctuating, and well adapted to all the 
purposes of trade. 

To do this, government need assume no new function; 
for it already issues this very kind of certificates for deposits 
of specie. They are called " gold notes," and circulate as 
such. When the specie standard is restored, all the notes 



232 



EXCHANGE. 



[BOOK III. 



in circulation will be gold notes, government being the 
trustee for holding the coin. This would not give any new 
power to the government, or confer any additional political 
influence. Being merely a trustee, with no patronage to 
bestow, no loans to make, no accommodations to grant, 
there could be no occasion to fear that the currency of the 
country would be swayed by partisan politics.* 

Table X. — Characteristics of the Different Currencies. 



Kind. 


Compo- 
sition. 


1 

Circula- 
tion. 


Stability. 


Conve- 

NIENCY 
IN USE. 


Convert- 
ibility. 


As a Stan- 
dard op 
Value. 


Specie 


Precious 

metals 


Universal 


Perfectly 
reliable 


Cumber- 
some in 

large 
amounts 


Needs no 
conversion 


Correct and 
invariable 


Credit 


Paper based 
on credit 


Local and 
arbitrary. 


Liable to be 
continu- 
ally aug- 
mented 


Conve- 
nient 


Inconverti- 
ble 


False 


Mixed 


Paper based 

on coin 
and credit 


Local and 
conven- 
tional 


Constantly 
Fluctuating 


Conve- 
nient 


Only par- 
tially con- 
vertible 


Defective 
and vari- 
able 


Mercantile 


Paper based 

wholly on 

coin 


Local and 
conven- 
tional 


Perfectly 
reliable 


Conve- 
nient 


Fully con- 
vertible 


Correct and 
invariable 



* Pages 231 and 232 have been altered from the previous editions of this 
work. The change which has been made consists essentially in this, that, in 
the previous editions, a certified currency, to be issued by governmental 
authority, was only suggested as a desirable way of securing a sound cur- 
rency ; while, in this, it is insisted upon as the true mode of attaining that 
object, and that the government, instead of banking institutions, should be 
responsible for the character and quality of the circulating medium. 

The practice above referred to, recently introduced by the United States 
Treasury, of issuing gold notes, that is, certificates of deposits of specie, has 
shown the feasibility of the measure, and made the public familiar with an 
arrangement which, if carried out, would furnish the country with a sound, 
governmental, certified currency. 



CHAP. XIV.] THE NATIONAL CURRENCY. 233 

CHAPTER XIV. 

THE NATIONAL CURRENCY OP THE UNITED STATES. 

Having given an extended analysis of mixed currency as it 
has heretofore existed in the United States, it seems proper 
that we should notice the important changes in that cur- 
rency soon to be consummated. 

In the month of February, 1863, Congress enacted a law 
establishing a national and uniform system of currency. 
This has since been put into operation to such an extent 
as nearly to supersede the State-bank system. We propose 
now to inquire in what respect it differs from, and in what 
respect it is like, the latter. 

DIFFERENCES. 

It differs from the old system, in that, — 

(1) Being created by national instead of State author- 
ity, it is entirely within the control of Congress, which, 
according to the last section of the National Bank Act, may 
at any time " alter, amend, or repeal it." 

(2) It differs, in that all the notes issued are guaranteed 
as to their ultimate redemption by the government of the 
United States. This provision we presume to be unique, 
and without any precedent ; for the government is not sim- 
ply a trustee, holding security for these notes, as in New York 
and some other States, on the safety-fund principle, where 
stocks are deposited to secure the circulation, but it abso- 
lutely guarantees the final payment of all these notes in 
full. 

Every banking association, on its organization, must 
deliver to the Treasurer of the United States the bonds of 
the United States bearing interest, and is then entitled to 
receive from the Comptroller of the Currency circulating 
notes of different denominations, in blank, equal in amount 



284 EXCHANGE. [BOOK III. 

to ninety per cent of the current market value of the bonds 
so transferred, but not exceeding the par value of such 
bonds. In case the notes issued by the banks are not paid 
by them according to promise, the Comptroller may sell the 
bonds left as security, and redeem the notes, making up to 
the holders of the same any deficiency there may be in the 
securities. This, it will be seen, does not secure the imme- 
diate convertibility, but the ultimate redemption, of the cir- 
culation. 

(3) It differs, again, in that these notes are legal tender 
in payment of "taxes, excises, public lands, and all other 
dues to the United States, except for duties," and also are 
legal tender by the United States in payment of all salaries 
and other demands owing by the United States, except in- 
terest upon the public debt ; but they are not a legal tender 
as between other parties. 

(4) Unlike the State-bank notes, those of the national 
banks, owing to the provision just mentioned, will doubtless 
have a nearly uniform value in all parts of the United States, 
and will therefore be generally acceptable as currency. 

(5) They differ also in this, that the national banks are 
compelled by law to keep on hand a certain proportion of 
" lawful money " to their circulation and deposits. In 
specified cities,* this proportion is fixed at twenty-five per 
cent; in all other places, at fifteen. 

Under the State systems, there was no legal obligation on 
the banks to keep any specie whatever, except in a few 
cases, as in Louisiana and (recently) in Massachusetts, and 
one or two other States. But this provision in regard to 
the national banks is practically, to a great extent, only a 
nominal matter, because the law provides that " bank bal- 
ances (due from one bank to another) shall be deemed to be 

* These cities are St. Louis, Louisville, Chicago, Detroit, Milwaukie, 
New Orleans, Cincinnati, Cleveland, Pittsburgh, Baltimore, Philadelphia, 
Boston, New York, Albany, Leavenworth, San Francisco, and Washington 
City. 



CHAP. XIV.] THE NATIONAL CURRENCY. 235 

lawful money;" and therefore, as these balances may be 
created fictitiously for the very purpose, the clause obliging 
the banks to keep a certain proportion of " lawful money " 
with which to redeem their notes is nearly a nullity. How- 
ever real these bank balances may be, they are not specie, 
but, as we have before shown, constitute the most danger- 
ous and explosive element of a mixed currency. 

This is one of the great defects of the law, and, until it is 
removed by the repeal of this provision, would alone make 
the system a dangerous and unreliable one. Let us look 
for a moment at the manner in which it may operate. 

The Merchants' Bank, Baltimore, has a balance against 
the Chemical Bank, New York, for twenty thousand dollars. 
The latter bank has a balance against the Globe Bank, 
Boston, for twenty thousand dollars. The Globe has a 
balance against the Merchants' Bank, Baltimore, for twenty 
thousand dollars. Here is sixty thousand dollars in this 
circle, which is to be reckoned as equal to so much specie, 
or lawful money. But is it so ? So far from giving any 
strength to the currency, it has the opposite effect. The 
object of requiring any specie, or lawful money, is, that the 
currency may be made more reliable ; but, if so, does not 
this provision, to a large extent, frustrate that object ? So 
far from giving strength, every banker knows that these 
balances are a cause of weakness and peril in time of panic. 

It can easily be seen that a very large proportion of the 
nominal amount of specie or lawful money required may be 
held in these " balances." 

Lastly, the national differ from the old State banks in 
this, that the latter had almost their entire capital to loan 
to the business community, while the new banks will have 
little or none at all, having loaned their capital at the outset 
to the government, by the purchase of its bonds. They 
can, therefore, only loan their credit, in the shape of circu- 
lation endorsed by the government, together with their 
deposits. 



236 EXCHANGE. [BOOK III. 



RESEMBLANCES. 

The new currency resembles that of the old State banks, 
in that it is a mixed currency, and in all essential respects 
as to its nature and effects, of the same character. 

(a) It will expand and contract from the same causes, 
and, so far as can be seen, with the same violence and to 
an equal extent, and consequently will be as fluctuating as 
the currency it is designed to supersede, except in so far 
as a larger proportion of specie shall be held for its re- 
demption. 

(h) It will be an equally delusive and false standard of 
value, having in itself but a small proportion of value. 

(c) It will raise prices and cause speculation when in 
the process of expansion, and depress prices and produce 
bankruptcies when contracting. 

(d) It will create an unnatural extension of credits at 
one time, and a corresponding contraction at another, pro- 
ducing great vibrations in the rate of interest. 

(e) It will derange the natural current of trade from 
time to time, causing an increase of imports and a decrease 
of exports, and thus forcing an export of specie to meet an 
unnatural balance. 

(/) It will counteract the influence of both natural and 
artificial protection, and retard the normal growth of home 
manufactures. 

Lastly, it will create panics, and cause frequent suspen- 
sions of all the banks in the country. 

It may be thought that the fact that the government 
guarantees the national-bank notes will prevent a run upon 
the banks ; but that will be found an entire mistake. Panics 
are created because money is wanted to pay notes and dis- 
charge immediate obligations, not because the people fear 
that the banks are insolvent ; and, whenever it is out of the 



CHAP. XIV.] THE NATIONAL CURRENCY. 237 

power of the banks to supply the currency immediately 
wanted, the panic must take place, with all its sad conse- 
quences. 

Such are essentially the points of difference and agree- 
ment between the two systems. The national government 
may change the character of the new currency, and make it 
approximate a value currency. It will have the power to do 
this ; and, as it is certain that the effects of this currency will 
inevitably be disastrous, and give rise to grave periodical 
disturbances in the monetary affairs of the country (not- 
withstanding its superiority in certain respects over the 
State-bank system), it seems highly probable that this will 
eventually be done ; the more so, because a large and grow- 
ing section of the Union is already averse to any other than 
a value currency. California and all the gold-bearing States 
are now, and, if they understand their true interests, always 
will be, hostile to any system which depreciates the value 
of their great staple. 

OPERATIONS OF THE NEW SYSTEM. 

The national-bank system being in its infancy, but little 
can be said of its actual operations. 

We have, however, the first Report of the present Comp- 
troller of the Currency (Freeman Clarke, Esq.), from which 
we can learn its condition on the 1st October, 1865 : — 

Loans $485,314,029 

Bonds deposited for circulation 272,634,200 

Other bonds held 155,097,100 

Total securities $913,045,329 

On this last sum the banks were drawing interest at the 
rate of from 6 per cent in gold to 7.30 in currency. The 
average rate of interest cannot be less than 7.30 ; for on the 
gold interest bonds they get (at 40 per cent premium) 8.40, 
and they have few securities that pay less than 7.30, to say 



238 EXCHANGE. [BOOK III. 

nothing of the exchange charged in making discounts. 
We call the rate, however, 7.30 on the whole amount. 

$918,045,829 at 7.80 $66,652,309.01 

This amount of income is equivalent to a little over 
twenty per cent per annum on the entire capital invested. 
It will thus be seen that the system is at least, a "paying 
one" to the stockholders. It is estimated that the gross 
earnings of the banks for 1866 will be twenty-five percent.* 

How it, affects the quality of the currency (if it. can be 
said to have any quality when wholly inconvertible) may 
be seen in the following statement. 

[mmediate liabilities of the national banks: — 

For circulation $131,452,158 

[individual deposits 893,684,888 

Public- deposits 58,03l\720 

Total immediate liabilities $583,119,711 

Total specie 14,966,144 

Excess Oct. 1, 1865 $568,153,567 

Specie to credit equal to 2\ cents on the dollar. The 
banks hold $193,094,364 in " lawful money " (greenbacks, 
compound-interest notes, &c). The excess of immediate 
liabilities over specie ami lawful money is three hundred and 
Beventy-five millions. This excess is some forty millions 
larger than ever known under the State-bank system. 

These statistics only show the condition of the national 
banks at the date mentioned (Oct. 1, 18G5). Since that 
time, they have been rapidly increasing in number, capital, 
circulation, and deposits; yet the general character of the 
currency they furnish will not essentially differ from what it 
now is until the government withdraws its own note circu- 
lation. Then specie must be had to sustain the circulation 
and deposits in the same manner, and at least to an equal 

* This, on an average, may be a high estimate. Many banks will, how- 
ever, do more than this. 



CHAP. XIV.] THE NATIONAL CURRENCY. 239 

extent, as under the old system. When that is done, the 
character of the new system will be developed, and its 
operations and effects made manifest. What they will be, 
no one who knows the nature of a mixed currency can have 
any doubt. 

As a further illustration, we give the operations of an 
individual bank in Massachusetts, as shown in the Comp- 
troller's first Report. 

The capital of this bank is 1300,000. As it is a converted 
one, it has, of its old capital, a " surplus " of $106,000. 
It has also $33,000 of " profits " on hand ; total, 1439,000. 
This is the amount of capital it actually had to loan. Let 
us see how much it has loaned : — 

Loans (on private securities) $155,000 

Loans on public securities, " United-States bonds " . . 334,000 
Loans on " otber United-States bonds and securities " . 266,000 



Total amount on which the bank draws interest . . $755,000 

The immediate liabilities and immediate resources of the 
bank are, — ■ 



Circulation . . . $275,000 
Private deposits . 105,000 
Public deposits . . 212,000 
Old circulation . . 33,000 

$625,000 



Specie 755 

Lawful money . . 52,000 
Total means in hand $52,755 



This is equal to about one mill of specie and ten cents 
of lawful money to each dollar of immediate liabilities ; 
but it has about $233,000 of bank balances, and, if these 
balances are sound, they furnish so much of additional 
immediate resources to this bank, though they do not 
change the character of the whole currency, because what 
one bank has due to it another must owe, leaving the result 
as if neither existed, except that, as both are liable to 
be instantly called for, they greatly endanger the whole 
system. 



240 EXCHANGE. [BOOK III. 

Statistics might be multiplied indefinitely ; but enough has 
been given to indicate the nature of the new currency, and 
the manner in which the new system is likely to be carried 
on. Being wholly in the power of Congress, it can be made 
whatever the people will. 

If the " Resemblances " of the National Bank system to 
the former State Bank system are so great as we have repre- 
sented, it is quite certain not to give permanent satisfaction. 
After the experience of the last forty years, especially of the 
last seven, the public mind will never rest satisfied, it is 
believed, until a currency is provided which can never fluc- 
tuate in quality or quantity from any thing inherent in itself. 
That object can, we think, be best secured by such a certi- 
fied governmental circulation as has been described on 
pages 231 and 232. 

The new system, then, is in so far to be regarded with 
complacency, as that it is more susceptible of reform, and of 
being restricted by national legislation to the business of legiti- 
mate banking. 



CHAPTER XV. 

EVIDENCES OP DEBT. 

"We have already spoken of two different modes of effecting 
exchanges ; viz., (1) barter, and (2) a universal equivalent, 
money or currency. We now notice a third mode of doing 
this ; viz., by evidences of debt. 

These are mainly of three kinds : — 

I. Book accounts. A sells B one hundred barrels flour, 
and charges him five hundred dollars in account, to be paid, 
by verbal agreement, in four months. 

This is a very extensive mode of effecting exchanges. 
Very large transactions are made in this manner. Retail 
trade, especially, is almost wholly carried on in this way. 
These accounts are often, particularly in country trade, paid 



CHAP. XV.] EVIDENCES OP DEBT. 241 

in commodities. The farmer makes his purchases of the 
merchant, from time to time, and sells him his produce 
when ready for market. Both are entered in account, and 
the final balance is ascertained and adjusted by money or 
other equivalent. 

(a) Book accounts are, in some respects, an undesirable 
form of transfer, because they are ex parte, and may be 
disputed. The purchaser may deny that he bought such a 
quantity, or at such a price. An account, if disputed, is 
always a matter to be proved ; and, although the oath of 
the seller is generally deemed conclusive evidence, there is 
always opportunity for litigation. 

(V) Another objection to book accounts is, that they are 
not negotiable. C cannot readily purchase B's account 
against A ; but, if B had A's note, that could be easily ne- 
gotiated, or transferred. Accounts cannot, of course, be 
made available at banks, like notes, or left as security for 
money borrowed. The capital is locked up for the time 
being. 

II. The next mode of credit is that of notes. These are 
made payable for a given sum, and at a given date. They 
are generally payable to the order of the payee, and, when 
negotiated, are indorsed by the latter. This transfers the 
ownership to a third person ; but the indorser is held to pay 
the note, if the promisor fails to do so. 

III. A third form is by bills of exchange, or orders from 
A to B to pay a given sum at a fixed time. These differ 
.from notes, in that they involve three parties, — the drawer, 
the acceptor, and the payee. They have a form usually 
somewhat like the following: — 

$1000. New York, Jan. 1, 1866. 

Four months from date, pay to the order of J. Brentwood & Co. 
one thousand dollars, value received, and place to account. 

(Signed) Henderson, Williams, & Co. 

To Messrs. Bennet Brothers & Co., Boston. 

16 



242 EXCHANGE. [BOOK III. 

Here are three parties, — the drawer, the acceptor, and 
the indorser or payee. 

This is first called a draft. When presented to the per- 
son on whom it is drawn, and by him accepted (which is 
done by writing the word " accepted " on the face, and sign- 
ing the name), it is an acceptance. When indorsed by the 
person in whose favor it is drawn, it becomes a complete bill 
of exchange. 

This species of transaction w'ill arise mainly between per- 
sons residing in different places, and in this manner : A, in 
Boston, orders of B, in New Orleans, one thousand bales of 
cotton, which B sends, with a bill of the same, and then 
draws on A for the amount. 

The commerce of the world is carried on principally by 
this agency. The transportation of money is thus dispensed 
with, except to settle the final balance of trade. 

BILLS OP EXCHANGE. 

Bills of exchange may be divided into two kinds, — do- 
mestic and foreign. 

Domestic bills are those drawn and payable within the 
same country, as between different cities and different 
States. The manner in which these bills save the use of 
money, in domestic trade, is illustrated as follows : — 

A, in Boston, sells to B, in New York, goods to amount 
of one thousand dollars. 

C, in New York, sells to D, in Boston, leather to amount 
of one thousand dollars. 

Instead of sending the money, B, in New York, goes to C, 
in New York, and gets his draft on D, and remits it to A, 
in Boston, who receives the money of D ; and the transac- 
tions are all closed without a dollar in .money having been 
transferred from one city to another. 

This is the course of all direct trade between any two 
places. Not, it must be understood, that, in the case sup- 



CHAP. XV.] EVIDENCES OP DEBT. 243 

posed, B actually goes to C ; but the merchants in Boston 
are . owing millions to merchants in New York, while per- 
sons of the latter place are owing, it may be, an equal 
amount in Boston. 

Bills are drawn on Boston for all due to New York, and 
on New York for all due to Boston. These bills are, when 
completed, if not before, generally passed into the banks, 
who. pay out the money for them, deducting the interest 
(and exchange, if there is any). Then, if a merchant in 
either city wishes to remit, he goes directly to the bank, 
which will draw on some bank in New York or Boston, as 
the case may be, for such sum as he may want. The banks 
negotiate or collect the whole, and sell or dispose of their 
own checks or drafts for the amount. 

This is a labor-saving arrangement of immense impor- 
tance, greatly reducing the otherwise inevitable demand for 
a large amount of money to be kept in transitu between the 
different marts of trade. 

INDIKECT EXCHANGE. 

But all exchange is not direct between two places. 

A, for example, in St. Louis, ships one hundred thousand 
dollars' worth of lead to New York. He wishes to pay sun- 
dry persons in Boston, Providence, Lowell, and Lynn. He 
draws on his correspondent in New York for all these, in 
favor of the persons to whom he is indebted ; and the drafts 
are negotiated by the receivers, through bank in the several 
cities, and finally all sent to New York for collection. All 
domestic trade thus becomes a great web of exchanges, which 
adjust themselves by means of these bills ; and thus, to their 
entire aggregate amount, obviate the necessity of transmit- 
ting money. 

FOEEIGN EXCHANGE. 

This consists of orders ; that is, bills of exchange, drawn 
upon each other by the merchants and bankers of different 



244 EXCHANGE. [BOOK III. 

countries. They differ little in form from domestic bills, 
but are usually drawn in sets of three ; called, respectively, 
the first, second, and third of exchange, in something like 
the following form : — 

£1000. Boston, June 28, 1859. 

At sixty days' sight of this first of exchange (second and third 
unpaid), pay to the order of A. Brown & Co. one thonsand pounds 
sterling, value received, which place to account. 

Brydone Brothers & Co. 
George Peabodt & Co., 
Loudon. 

The party to whom the bill is payable takes these, and 
forwards the first to London, where it is accepted and 
paid. But an accident might occur by which the bill would 
be destroyed or lost while on its way to London ; and, in 
that case, the owner would forward the second, which would 
be paid. The third bill is also held, for the same precau- 
tionary reasons. 

These bills arise in a great variety of ways. Persons 
wishing to purchase merchandise or other articles abroad 
go directly to bankers in New York, Boston, <fcc, and buy 
a bill of the required amount. So with persons wishing 
to travel abroad. But the principal amount, of course, is 
drawn in payment for importations of foreign mercbandise. 
In general, the trade between England and this country is 
carried on by bills drawn on this side the water, upon cotton 
and other produce shipped abroad, mostly to Liverpool. 

To illustrate the ramifications of this kind of intercourse, 
we will suppose that A, in Boston, buys merchandise of B, 
in Liverpool ; C, in Boston, sells goods to D, in New Or- 
leans ; E, in Boston, buys cotton of F, in New Orleans, and 
ships the same to G, in Liverpool. Each transaction, we 
will suppose, amounts to five thousand dollars. 

How are all these settled without the transfer of money ? 
A gets the draft of E upon G, and sends it to B, in Liver- 



CHAP. XV.] EVIDENCES OP DEBT. 245 

pool ; E gets the draft of upon D, and remits it to F, at 
New Orleans, who receives the amount of D.* 

Thus four debts of five thousand dollars, in all twenty 
thousand dollars, have been paid, and no money has been 
transferred from one place to another. 

Observe, now, the saving of time and interest : — 

To have transported $5000 from Boston to Liverpool 

would have ordinarily required 14 days. 

The same amount from Liverpool to Boston . . . . 14 days. 

The transport from Boston to New Orleans 6 days. 

The same from New Orleans to Boston 6 days. 

Total 40 days. 

Saving of interest on $5000 for forty days, at six per 
cent, is 133.33. From this view of the matter, we see what 
an immense saving is made in the use of money, the ex- 
penses of transporting it, and the interest on the same, upon 
the thousands of millions of dollars required in the trade 
of the world. 

In 1857, the United States imported $362,000,000 

And exported cotton, hreadstuffs, &c, $293,000,000 ; 

gold, $69,000,000 360,000,000 

Leaving a nominal balance of . . . $2,000,000 

Another thing in regard to exchange may be noticed ; viz., 
England received that year of us (the United States) fifty- 
four millions more than we bought of her. The same year 
we bought of 

Brazil more than sold to her $16,000,000 

China. 4,000,000 

Spain, Cuba, &c 29,000,000 

France 8,000,000 

$57,000,000 

* These transactions go through banking houses, as in the case of domes- 
tic exchanges. 



246 EXCHANGE. [BOOK IIL 

These balances were mainly adjusted by drafts on Eng- 
land, by which our balances against England were dis- 
charged. 

From facts like these, we can readily believe that at least 
nine-tenths of all the trade of the world is carried on by bills 
of exchange. Such is the estimate made in England and 
this country, and there is reason to believe that it is approx- 
imately correct. 

THE NATURAL RATE OF EXCHANGE. 

By the rate of exchange is meant merely the price or cost 
of transporting money from one point to another ; say, from 
Cincinnati to New York. If the time, freight, insurance, 
and other charges are equal to one per cent, then that is the 
natural rate of exchange. We have shown that only a small 
amount of coin, in the course of trade, is likely to be trans- 
ported from one place to another. As there is a mutual 
trade, as Cincinnati buys of New York and New York of 
Cincinnati, it is only necessary to buy bills of exchange be- 
tween these places. But on these bills there will be a pre- 
mium or discount, as the case may be. If New York has 
purchased more largely in the mutual trade, there will be 
an excess of demand in that city for bills on Cincinnati. 
Reverse the supposition, and there will be an excess of de- 
mand in Cincinnati for bills on New York. The consequence, 
in either case, will be a rate of exchange equal to the trans- 
portation of specie, as above indicated. The rate of ex- 
change will fluctuate from time to time (other things equal) 
precisely according to the transactions between the two 
cities. It becomes, then, in point of fact, the barometer of 
trade ; indicating, with perfect accuracy, the state of trade 
between any two points, at home or abroad. With a sound 
currency, the rate of exchange may always be relied upon, 
and is always watched with great interest by every intelli- 
gent merchant and banker. 



CHAP. XV.] EVIDENCES OF DEBT. 247 

If this be so, we see that perfect freedom of exchange is 
of great importance, and that no extraneous influence 
should be brought to disturb this barometer, to which all 
ought to look with entire confidence. 

If, for example, there existed a national bank, having the 
right to inflate the currency at pleasure, and with branches 
so distributed over the country that it could bring its whole 
power to bear upon any given point whenever it chose, it is 
easy to see that such an institution might control the ex- 
changes, and thus do a great injury to the community; not 
only by charging excessive premiums, but by disturbing the 
normal indications of the exchange market. This, it has 
been charged, the United-States Bank, whose charter ex- 
pired in 1836, actually did ; at any rate, it certainly had the 
power and the motive to do it. 

The Bank of England has never been permitted to deal 
in exchange. 

THE RATE OP BRITISH EXCHANGE. 

It is well known, that the ordinary rate of exchange be- 
tween this country and England is from nine to ten and a 
half per cent against the United States ; but the explanation 
of this is not generally understood. The transportation of 
specie between the two countries, all charges and time in- 
cluded, costs only about one and one-quarter per cent. Why, 
then, this difference ? 

"When the American government was first formed, the old 
Spanish milled dollar was in use ; and $4.44 were equal to 
the British gold coin called a sovereign, or pound sterling. 
And Congress enacted that $4.44 should be the rate at 
which the pound sterling must be computed at our custom- 
houses. 

Since that time, important changes have taken place ; the 
relative value of gold and silver have changed. The latter 
has advanced, or the former declined. The American dol- 



248 EXCHANGE. [BOOK III. 

lar, too, has been altered, so that it has a less quantity of 
silver ; and our gold coins, also, proportionately. It there- 
fore now takes $4.86.6, in American coin,. to be equal to a 
pound sterling. Thus the — 

Actual value of the pound sterling is $4.86,6 

Legal valuation 4.44,4 

Difference 42,2 

which, it will be seen, is equal to very nearly nine and one- 
half per cent ; so that, when exchange is quoted at nine 
and one-half per cent, it is really at actual par. 

Now, if this is the actual par value of the two currencies, 
it will happen, that, whenever the market rate of exchange 
rises so far above nine and one-half per cent as to be suffi- 
cient to pay the expenses of sending specie and a trifle 
more, then the specie will go forward. 

What these expenses are will be seen by a statement of 
an actual transaction between Boston and London, Feb- 
ruary, 1865. 

Gold purchased $50,000 

Insurance, one-half per cent $250.00 

Freight to Liverpool, three-eighths per cent . 187.50 

Carriage, Liverpool to London 5.00 

Selling, commission, one-eighth per cent . 62.50 

Fourteen days' time lost, at six per cent . . 83.33 

$588.33 

These expenses are equal to about one and one-sixth per 
cent. 

There is always some risk that the specie sent forward 
may not hold out full weight ; that is, that, owing to abra- 
sion in use, it might fall short a trifle : so that, probably, 
instead of one and one-sixth, the exporter of gold might as 
well have bought a bill of exchange, at one and one-quarter 
per cent above 9^-, the actual par. 



CHAP. XV.] EVIDENCES OP DEBT. 249 

Then, if the difference in the par value of the two curren- 
cies is equal to 9.5 

And the expenses of remitting gold equal to 1.25 

Real par value of exchange, total 10.75 

it will follow that gold will not ordinarily be exported until 
the market rate of exchange is about ten and one-half to ten 
and three-quarters per cent. 

The same general principle applies to French exchange, 
which usually stands at about five per cent against this coun- 
try. It is only the difference between the value of the coins 
of the respective countries, as computed here. 

Although Congress, some time since, made a change 
in the law in regard to the computation of the British 
pound, — fixing it at $4.84, — yet such has been the in- 
superable strength of old custom and inveterate habit, 
that the quotations of exchange still continue to be based 
on $4.44. 

"While this, of course, is not a matter of great impor- 
tance, we think the Boards of Trade in the Atlantic cities 
would do well to use their influence against the absurd 
practice. 

A change so desirable and expedient cannot be long 
delayed. 

ARE BILLS OP EXCHANGE CURRENCY ? 

It has often been maintained that bills of exchange are 
currency, as truly as bank-notes. Let us inquire. 

1st, The popular definition of currency is, that which 
passes current from hand to hand in all transactions between 
buyer and seller, in large or small amounts ; and, also, in 
payment of all obligations. It is evident that this is not 
true of bills of exchange, which may be taken as the exam- 
ple of all negotiable paper. It is, indeed, said, that in some 
countries, as in Great Britain, they are so used, in a limited 



250 EXCHANGE. [BOOK III, 

degree ; but even such use does not bring them within the 
definition. 

2d, The wider definition which we gave of currency, viz. 
that instrumentality by which a general exchange of values 
is effected and payments are made, does not embrace bills 
of exchange, which have themselves to be discharged with 
currency. The fact, that, when found in equal amount on 
opposite sides, they may be used to cancel each other, 
makes them no more currency than is the credit side of a 
book-account, which balances the debit. Bills of exchange 
dispense with the necessity of transporting currency in a 
certain number of commercial transactions : they are not, 
therefore, themselves currency. They allow debts between 
different States or nations to be discharged in the local 
currencies ; but each bill is itself discharged in full by the 
use of currency, no less. 

3d, Currency, if it be equal to money, can be at once ex- 
changed for specie, at the place where issued ; but cash can- 
not be obtained on demand for bills of exchange, as they 
are generally on time. Here, then, is another wide differ- 
ence between currency and individual promises. They are, 
in fact, bought and sold for money, like the merchandise on 
which they are drawn. 

4th, Currency is that in which all persons promise to pay 
their cash obligations. Is that true of bills of exchange ? 
Quite the reverse. 

5th, If a bill of exchange be dishonored, that is, not paid 
according to promise, the currency of the country is not 
thereby diminished. Is it so with currency ? On the con- 
trary, if a bank fails, so much currency as it has in circula- 
tion is at once abstracted from the community. 

But how is it with bills of exchange and notes ? 

Suppose the indebtedness of a country were one hundred 
millions, and its currency ten millions. 

Then, if fifty millions of the bills of exchange and notes 
of hand fail to be paid, there still remains the ten millions 



CHAP. XV.] EVIDENCES OP DEBT. 251 

of currency with which to pay the balance ; and currency is 
twice as plentiful, relatively to indebtedness, as before. 

Suppose, on the other hand, that one-half the currency 
fails, while the whole amount of bills of exchange, &c, 
remain to be paid ; or, to go further, suppose the entire 
currency to fail : then how can the private bills be paid at 
all? 

So far from being currency, then, they are the very oppo- 
site in their nature, and can be discharged only by the use 
of currency. 

The more bills of exchange, the less, relatively, is the cur- 
rency : the fewer bills of exchange, the more plenty, rela- 
tively, is money. 

How, then, can bills of exchange and promissory notes 
be synonymous with currency ? 

6th, Do bills of exchange affect the standard of value, and 
consequently prices ? If plenty, are commodities higher ? 
if scarce, are they lower? 

If bills of exchange were passed from hand to hand in 
exchange for merchandise (which we are sure is not the 
case to any considerable extent in the United States, if any- 
where), it would seem that, so far as thus used, they would 
affect prices ; but this could only be temporarily, because, in 
a short time, the state of the money market would restore 
the equilibrium. If they do raise the prices, they will in so 
far prevent exports, and increase imports and consumption ; 
and thus a demand must arise for specie for export, to settle 
the balance of trade ; and this will cause a contraction and 
a fall of prices. 

7th, A scarcity of bills of exchange, however great, can 
never, under a sound currency, be the occasion of pressure 
for money, or a panic ; but a scarcity of currency may do 
this, and often does. 

Do we not see, then, that there is a wide distinction be- 
tween currency and all forms of credit ? — that to confound 
them is to destroy necessary distinctions ? 



BOOK IY. 
DISTRIBUTION. 



CHAPTER I. 

DIVISIONS OP THE SUBJECT. 

The distribution of wealth, like its exchange, arises out of 
the division of labor. 

We have seen, that production might, in strict theory, 
proceed without co-operation ; with feeble and painful steps, 
it is true : but its laws would still be perfect, should all men 
refuse to associate in their efforts, and singly seek the satis- 
faction of their desires. In such a case, there would be 
neither exchange nor distribution. 

We have seen by whom all wealth is produced, have ex 
amined the instrumentalities employed in its transfer from 
one individual or people to another, and have contemplated 
the nature and extent of that great system of trade by 
which the products of the world are made to minister to its 
wants. 

We have observed that capital and labor are united in 
production, — one as the labor of the past, the other as the 
labor of the present ; and that the joint product is divided 
between them. We now come to consider the laws by 
which an equal and just distribution of the wealth produced 
shall be secured among the parties. In doing this, we are 
obliged to discriminate between the different kinds of labor 
employed and the various forms in which capital enters into 

production. 

[252] 



CHAP. I.] DIVISIONS OF THE SUBJECT. 253 

Labor, in the distribution of wealth, falls into three gen- 
eral classes : — 

1st, Physical or muscular effort. 

2d, Mental effort or enterprise, applied to the union of 
capital and labor. 

3d, Subsidiary labor, or professional services, auxiliary 
to direct efforts in production. 

The reward of the first is called wages ; that of the 
second, profits; of the third, salaries, fees, &c, — but 
another name for wages. 

In these three general forms, labor receives its reward. 
It is, however, to be observed, that, though the distinction 
is clear between the wages of direct labor and the compensa- 
tion paid for subsidiary labor, — like professional services, 
— yet the laws which govern are so similar as to render 
separate examination unnecessary. Both are controlled by 
the proportion of supply and demand. 

Cajrital is loaned in two general forms : — 

1st, When invested with a permanent character and 
having a fixed place, — as houses, fields, &c, — its compen- 
sation is called " rent." 

2d, When in a shape, however solid and tangible, which 
is not intended to be retained, but may be altered to suit 
the business, or removed for convenience of location, — 
i.e., where not the identical product, but only an equivalent, 
is to be returned, — its compensation is called "interest." 

Such, then, are the forms in which capital does its part 
in production ; and such the forms in which it receives its 
share in distribution. They are, in their nature, the same, 
and in scientific treatment might properly be discussed 
under one title ; but the common names are so deeply fixed 
in the mind, so intimately associated witli political economy, 
and so interwoven with daily experience, that only confusion 
could result from speaking of them as one. 

Production, thus far, has been charged with wages (and 
under this term we include all the rewards of auxiliary 



254 DISTRIBUTION. [BOOK IV. 

labor, salaries, fees, &c), profits, interest, and rent. Be- 
tween these parties the product is to be divided. This 
division is made by natural laws, which, if not interfered 
with by legal enactments or social customs, will secure to 
each its rightful share. 

But, while this is true, another party enters the field, and 
makes a peremptory claim to a portion of the wealth which 
the joint efforts of these has produced. That party is gov- 
ernment, demanding - a revenue for its maintenance, to 
which all must and should contribute. This is done in the 
general form of taxation. 

Distribution is now complete, — wages, profits, interest, 
rent, and taxation. These we shall examine in their 
order. 



CHAPTER II. 

WAGES. 

Since labor and capital join together in production, each 
may rightfully claim, and in the nature of things must 
receive, a share of whatever is produced. 

The share which labor receives is called " wages ; " and 
by this general term is meant that compensation which the 
employer pays to the employed for his personal services. 
The law of value is the law of wages. Wages confer value, 
and are measured by it. They depend essentially on the 
conditions of cost, supply, and demand. Competition conies 
in to influence their rate, as it does the price of other com- 
modities. 

Wages vary greatly in different countries, and in different 
parts of the same country ; they vary, too, in all the em- 
ployments and occupations of society. These differences, 
however, are neither accidental nor arbitrary, but depend 
on certain laws which it is our purpose to point out.* 

* A part of this chapter appeared in the "Merchant's Magazine" in 1857. 



CHAP. II.] WAGES. 255 

The joint instrumentality of labor and capital being 
necessary to the production of wealth, it follows that the 
interests of the two parties are closely connected ; that cap- 
ital is as dependent on labor as labor is upon capital. 

If this is so, the probabilities of an equitable division 
will depend on the freedom with which both parties are 
able to act, and the equality on which they stand when the 
contract or copartnership is formed. 

"Whatever, in social arrangements or civil institutions, 
destroys the natural freedom and equality of the parties, 
gives one an advantage over the other ; and the party having 
the advantage will profit by it. 

Wherever, by class legislation, capital is allowed to tyran- 
nize over its copartner, or concentrate itself in vast aggre- 
gations, and thus increase its natural power over labor, 
which cannot be thus brought into powerful and permanent 
combination, the latter will be compelled, in one form or 
another, to take up with less than its just reward. 

But, however unjust or arbitrary laws or institutions may 
be, it is evident there are certain* limits beyond which the 
wages of labor cannot be reduced. 

The cost of labor is identical with the cost of maintain- 
ing the laborer in such circumstances that he can not only 
support himself, but rear a family of children sufficiently 
numerous at least to keep the supply of laborers good. 

Hence he must receive what has been properly denomi- 
nated necessary wages ; that is, to use in part the definition 
of Adam Smith, " such wages as will enable him, not only 
to obtain the commodities absolutely necessary to the sup- 
port of life, but whatever else the customs of society render 
it indecent for persons in his rank in life to be without." 

There being, then, no uniform and established standard 
of wages, they vary according to the expenses of subsist- 
ence in different countries, and the condition in which the 
laboring classes are willing to live. 

The cost of labor, or the current rate of wages that can 



256 DISTRIBUTION. [BOOK IV. 

permanently exist, depends on the necessary expenses of 
living ; and these expenses, in turn, depend upon the condi- 
tion of the laboring classes. Hence, other things equal, the 
more educated and morally and intellectually elevated any 
community of laborers may be, the higher will be their 
standard of wages. 

Wages are not high in proportion to the wealth of a com- 
munity, but rather- to the disposition that exists amongst 
those possessing wealth to pay it out for labor ; and this 
disposition will depend much upon the security and profita- 
bleness with which capital can be employed in production, 
and the enterprise and aspirations of the people. 

We make the following divisions of our subject : — 

NOMINAL AND REAL WAGES. 

There is often a considerable difference between the nom- 
inal and real wages, or between the wages of the employ e* 
when received in money or when realized in such commodi- 
ties as his wants require. As this is a question of fact, we 
refer to pages 177, 178, of this work, as shown in Table V. 
In that table we find the prices of ten commodities, 
which the laborer would be likely to use in his ordinary 
consumption, such as sugar, coffee, molasses, pork, cheese, 
rice, salt, <fec. 

By taking the wages of the laborers at certain periods, 
and the prices at corresponding periods, we ascertain the 
desired results. We have added the year 1864 from the 
best unofficial sources at hand : — 

1836. 1840. 1843. 1864. 

Wages* .... $1.25 $1.00 $1.00 $1.50 

Commodities . . . 29.46 20.73 14.82 46.96 

Labor required . . 23£ days 20| days 14| days 34^ days 

* It is to be regretted that we have no carefully prepared tables of wages 
in the United States. Such are greatly needed. We have taken the rates 
mentioned according to our own observation, and believe them essentially 
correct. 



CHAP. III.] 



RISE AND FALL OF WAGES. 



257 



Nominal wages fell from 1836 to 1840 by one-fifth, or 
twenty per cent ; yet the real wages (as shown by the less 
number of days required to procure the same commodities) 
were higher in 1840 than 1836 by more than thirteen per 
cent. In 1843, when the nominal wages were but one dollar, 
real wages were about sixty per cent better than in 1836, 
when the nominal wages were twenty-five per cent higher. 
In 1864, when nominal wages were at one dollar and fifty 
cents, real wages were but little more than half what they 
were in 1843 at one dollar. 

In this connection, it seems appropriate to mention the 
great difference to the laboring classes between a value and 
a credit currency. If the latter, as we have endeavored to 
show, raises prices and causes speculation, and if the price 
of labor does not rise in proportion to the rise of prices, 
then it must follow that wages were really less at all times 
of inflation than when the currency is in a natural con- 
dition. How great these fluctuations are we have seen in 
Table V., pages 177, 178, from which, as an illustration in 
point, we give the following triennial synopsis : — 



Years . . . 


1834. 


1837. 


1840. 


1843. 


1847. 


1850. 


1853. 


1856. 


1859. 


Prices . . . 


$19.13 


$28.40 


$20.73 


$14.82 


$20.82 


$16.20 


$22.47 


$25.02 


$22.11 



Every one acquainted with the rate of wages will realize 
at once that they have not corresponded to their fluctua- 
tions in prices, and that the laboring and salaried classes 
must have suffered great injustice in consequence. 



CHAPTER III. 

PROPOETIONATE RISE AND FALL OF WAGES. 

Although wages rise and fall with the general rise and fall 
of commodities, they do not in equal proportion. The fact 
is one of common observation ; but the reason of this dif- 

17 



258 DISTRIBUTION. [BOOK IV. 

ference we do not recollect to have seen stated by any 
writer. For nearly all products there is both an actual and 
speculative, or a present and prospective, demand : for 
labor there is only an actual, present demand. When busi- 
ness begins to be particularly prosperous, there is a general 
demand for all kinds of merchandise, and prices gradually 
begin to improve. This at once occasions a speculative 
demand ; for to buy will be to realize an advance : the larger 
the purchases, the greater the amount of profits. Every ope- 
ration pays. The rise continues until every article bought 
and sold as merchandise goes up to the highest point. 

But no one speculates in wages. No one can, if he 
would, buy a hundred thousand dollars' worth of labor, and 
hold it for an advance, as he can of flour, sugar, or tea. 
Of course, labor has no advantage from this kind of demand, 
but must rely entirely on that which is immediate and 
actual. Therefore it is that a general rise of prices, so far 
as occasioned by speculation, must always operate against 
the laborer, or the person employed on salary or wages. 

But wages not only never rise so much as commodities, 
but do not rise so soon. The reason is, that the rise of 
commodities is greatly accelerated by speculation ; while 
labor, as before stated, is not affected by that kind of de- 
mand. Hence it does not begin to rise until speculation 
has engendered a spirit of extravagance and increased con- 
sumption ; then wages make an advance about half as 
great, on an average, as that of merchandise in general. 

And, again, wages fall sooner than merchandise, because 
the latter may be held for high prices, if need be. The fall 
of merchandise is broken by the disposition and ability of 
the owner to hold on, and, as far as possible, prevent loss ; 
but the laborer cannot do this, — he must sell his com- 
modity at once for the most it will bring. 

It is for those obvious reasons that wages, in times of 
depression, must fall, not only sooner, but lower, than prop- 
erty in general. (See Appendix B.) 



CHAP. III.] RISE AND FALL OF WAGES. 259 

A real rise or fall in wages is a matter difficult to ascer- 
tain with certainty. Fluctuations, since the introduction 
of mixed currency, have been frequent and violent, not in 
the rate of wages only, but of those commodities upon 
which the laborer subsists, and in which his real wages must 
be estimated. To determine whether actual value wages 
have advanced or not since the commencement of the 
present century, for example, we must have the nominal 
rates, say, in 1810, also in 1860. We must then take the 
prices of commodities at the two periods ; and, by compari- 
son, we may arrive at a general conclusion. We should 
undoubtedly be satisfied that there has been a decided 
increase in the average value of wages. In our investiga- 
tion, we should find that some articles were higher and some 
lower in price in 1860 than fifty years before. For example, 
while one dollar per day for labor was probably as high 
wages in 1810 as one dollar and a half in 1860, corn was 
worth the same at each end of the half-century ; but cotton 
cloth, which was worth forty cents a yard in 1810, could be 
bought in 1860 for ten cents. In all manufactured articles, 
the difference is against the earlier labor ; so that it is true 
the laborer of to-day enjoys many comforts to which his pre- 
decessors could not aspire. The to ants of the laborer have 
immensely increased. It would be impossible to give an 
inventory of them ; but, could we compare the consumption 
of those classes in 1810 with their consumption in 1860, we 
should find the advance surprising. The amount expended 
for pleasure-travel, for example, by this class is immense, 
while fifty years ago it was hardly appreciable. So of 
the luxury of newspapers, magazines, &c. Some part 
of the expenditures of the poorer classes are for articles 
(like photographs) which were absolutely unknown a gen- 
eration since. 

Workmen may be less satisfied with their compensation 
now than fifty years ago ; but it is really far greater. We 
do not say they have no cause for complaint, yet they are 



260 DISTRIBUTION. [BOOK IV. 

vastly better off than those who went before them. Wages, 
when realized in commodities, have increased. The general 
product has been enlarged by the introduction of labor- 
saving machinery, and therefore their absolute share is 
greater. Whether their relative share, as compared with 
that of the capitalist or employer, is greater, we shall find 
place elsewhere to discuss.* 

The laborer suffers nothing, but gains much, in the pro- 
gress of civilization, if he is not despoiled by an unsound 
currency. That is his greatest oppressor, because his real 
wages — what he obtains in commodities for his labor — is 
determined to a considerable extent by the character of the 
circulating medium of the country. If the value of that, or 
its purchasing power, is less than it professes to be, he can- 
not fail to be injured by it. 

DIFFERENCE OF WAGES FROM DIFFERENCE OF EMPLOYMENTS. 

Occupations which manifestly involve a great amount of 
personal danger command higher wages than those regarded 
as perfectly safe. The risk of life must be taken into ac- 
count. The man who works at powder-making gets a 
higher price than the man who works upon a farm; the 
man employed in blasting rocks, than the man who shovels 
gravel. So it ought to be, and so to some extent it is, in 
regard to mining and other dangerous employments ; though, 
from the smallness of the difference, it is often quite mani- 
fest that human life is placed at a low valuation. 

Any occupation which public opinion brands as odious 
and revolting will usually be found to pay a large compensa- 
tion, for the reason that honorable or conscientious men 
will not engage in it. 



'©"o v 



* The very low rate of " corn wages " received by the English laborer 
in times past may be seen from the statement of Mr. Malthus (Pol. Econ., 
p. 228, Lond. ed. 1836), that wages had advanced, and wheat fallen, so much 
" that, from 1720 to 1750, a whole peck of wheat could be had for a day's 
labor." 



CHAP. III.] DIFFERENCE IN WAGES. 261 



UNHEALTHY TRADES. 

Those occupations which, although not immediately dan- 
gerous, are nevertheless unhealthy and abridge human life, 
ought to command more than ordinary wages. 

If a man is liable to be made sick, and consequently ex- 
posed to loss of time and expense for medical attendance, 
he should be compensated for that liability. If he shortens 
life in a particular employment, that should be a matter of 
consideration in determining the rate of wages. 

It is not for us to inquire here whether a man may right- 
fully engage in that which he knows will abridge life ; but 
that multitudes do so is beyond a doubt. 

Regarded in a merely economical point of view, it is 
obvious, that, on this account, some laborers should receive 
much higher compensation than they do at present. To 
determine what that increased pay ought to be, we should 
be obliged to ascertain the value or expectation of life in 
the different occupations. 

The expectation of life should be a matter of considera- 
tion with every one choosing his business, and should have 
importance in determining the rate of wages. That this is 
not adequately the case now is quite evident, because wages 
paid for labor in unwholesome employments do not corre- 
spond with the consequent abridgment of human life ; so 
that the laborer not only loses a good part of his life, but 
also a share of the wages he ought to receive while he 
does live. 

Agriculture is evidently the normal employment of man, 
that in which he lives longest and enjoys the greatest 
health. Every other calling is unwholesome to the exact 
extent in which it departs in its condition from the agricul- 
tural ; and the rate of wages should be adjusted to a scale 
constructed on this principle. 



262 DISTRIBUTION. [BOOK IV. 



THE EDUCATION OF THE LABORER. 

Other things equal, the man who has received merely a 
common-school education will obtain higher wages in any 
employment than one who is entirely illiterate. He has 
some mental discipline, will therefore be more intelligent 
and capable, will better understand and recollect the direc- 
tions of his employers, better comprehend the nature of 
his duties. If need be, he can keep an account of what lie 
does. He has in some measure learned to think ; he will 
have a higher sense of self-respect, and be more reliable. 

The difference in favor of a workman who is so far fur- 
nished with intelligence that he can do his own share of 
thinking, instead of relying entirely upon his employer for 
every exercise of judgment and forecast, is very great to 
the employer. If the latter is compelled to supply all the 
head-work, he must be in constant attendance, and exercise 
the utmost vigilance. Five stolid workmen will cost him as 
much time as ten intelligent ones, and a great deal more 
care, vexation, and loss. Hence intelligent labor is worth 
more, and will bring more. 

THE FRUGALITY OF THE LABORER. 

Another important consideration in connection with this 
part of our subject is, that the educated laborer will be 
more likely to appreciate his true interests, and save a part 
of his earnings. Every dollar he saves and accumulates in 
the shape of property, of whatever kind, will render him 
more independent ; and the more independent he is, the more 
likely he will be to get fair wages. He becomes, to a certain 
extent, a capitalist, and can measure strength with capital 
on better terms. 

The man who has nothing upon which to subsist to-day 
must work to-day, at whatever price, or starve ; while he 



CHAP. III.] WAGES OF FEMALES. 263 

who can get on for a fortnight without employment may 
choose whether he will work for less than a fair price 
to-day or not. 

This is a matter of great importance to the laborer ; for 
the natural advantage the capitalist has over him is, that 
the latter can wait a little, while the former must work 
now. The laborer or employe" of whatever kind (for all are 
subject to the same law) should strive earnestly to make 
himself as independent in his position as possible. Hence, 
self-denial and economy, when exercised by those who live 
on wages or salaries, are amply repaid by better terms of 
service. There is a homely adage, " that a man is poorer 
for being poor," which laborers, of all others, should bear 
in mind. . 

DISTINCTION OF SEX. 

"Women receive less wages than men. This is doubtless 
true in all the so-called civilized countries. The difference 
may be stated at about fifty per cent to their disadvantage ; 
that is, where the man receives one dollar, the woman re- 
ceives fifty cents.* And this, too, not only where the 
services of the two sexes differ, but where they are iden- 
tical, as in school-teaching, type-setting, &c. Why this 
disparity ? 

Political economists, so far as we know, have not troubled 
themselves much about it. Philanthropists have taken cog- 
nizance of the fact, and have sought to apply a remedy, but 
generally, we may say uniformly, with little success. We 
shall not go at length into the subject, only endeavor to 
state the causes from which we suppose the difference arises. 
These may suggest the remedy. 

The first consideration to be noticed is the fact that the 

* The average monthly wages of male teachers in the puhlic schools 

of Massachusetts, 1857-8, was $49.87 

The average monthly wages of female teachers in the public 

schools of Massachusetts, 1857-8 $19.63 



264 DISTRIBUTION. [BOOK IV. 

two sexes exist in .remarkably equal numbers throughout 
the world. There are as many women as men. 

The second, that, while almost all occupations and em- 
ployments are accessible to the male sex, but comparatively 
few are, by the opinions and customs of society, regarded 
as proper for women. One, therefore, has the whole field 
of life in which to act ; the other is limited to a part. 

On the principle, then, of supply and demand, the number 
of females being as great as that of males, while their em- 
ployments are so much fewer, they must of necessity work 
for less reward. The supply is greater than the effective 
demand. 

A third fact is, that the part of labor assigned to women 
is of a more dispensable character. \ great part of the 
labor of women is connected with the comforts, conve- 
niences, and luxuries of life : hence it can and will be 
dispensed with, unless it can be had cheap. The staple 
productions — corn, cattle, iron, cotton, and the like — must 
be had, at whatever price or cost of labor ; but not so with 
the thousand-and-one little articles of beauty, taste, and 
fashion which female industry creates in every household. 
For example : suppose a farmer employs two men to carry 
on his agricultural labors, and usually the same number of 
females in the work of the house. Now, if he should be so 
pushed for means as to be obliged to dispense with one of 
his employes, which would it naturally be, one of his hired 
■men or hired maids ? Doubtless one of the latter ; because, 
by doing so, he would only lose some of the conveniences 
and comforts of life, without, perhaps, much sacrifice of 
property ; while, in the other case, he would lose part of his 
crop. 

There seems to be a prevalent feeling at the present day 
that the wages of woman ought to be increased ; that her 
position ought to be less dependent. But those who are 
satisfied with the existing customs and opinions of society, 
by which the sphere of woman is restricted to its present 



CHAP. III.] WAGES OF FEMALES. 265 

limits, ought to be equally well satisfied with the compensa- 
tion allotted her ; for it is just such as must follow. 

No attempt to enhance her wages by appeals to human 
sympathies or benevolent organizations need be attempted ; 
for there is a law that overrides all these, — the law of 
supply and demand ; a law founded in nature, inexorable 
and immutable. An increase of her wages can only result 
from an increase of her employments, — of employments, 
too, of an equally indispensable character as those of the 
other sex. 

That a change of this sort is fortunately in progress in 
most civilized countries, and especially in the United States, 
is apparent. The introduction of machinery is doing much 
to equalize the wages of the two sexes. Water and steam 
are now made to accomplish that which could once only be 
done by human strength, leaving the residue of labor, which 
is, to a great extent, the exercise of intelligence, care, and 
attention, to be performed by persons of either sex. Hence, 
there is now a great demand for the labor of females where 
there was once none at all. There is less demand for 
muscle, and more for mind : this brings woman nearer an 
equality with man. 

In the department of education, too, the sphere of 
women's labor is vastly extended within the last forty 
years ; and, from existing indications, the present century 
will not close before a considerable part of the business of 
the medical profession will be in their hands. Women are 
also employed extensively in public offices and trading es- 
tablishments. 

All this is the natural result of our civilization, and 
especially of a free common-school education. In a great 
part of the United States, the same advantages are furnished 
to both sexes. The consequences are, that as the females 
are more docile, have a quicker apprehension, and are more 
studious generally, they acquire a better education in our 
lower schools and seminaries than the other sex. 



266 DISTRIBUTION. [BOOK IV. 



A NEW CLASSIFICATION OF WAGES. 

There have now been presented most of the considera- 
tions we have room to offer in regard to the subject before 
us, and in somewhat the usual manner of arrangement. 
We propose, in conclusion, to give what may be a new, but 
as we think, a more natural and scientific classification 
of wages. 

Properly considered, wages are paid for three different 
kinds of power ; viz., — 

1st, Physical power, or mere muscular effort with the 
spade, shovel, hoe, and the like ; the kind of labor least ele- 
vated above that of the horse or ox. This power is most 
plenty, comes by nature, costs the least, and is therefore 
cheapest. It would be so regarded theoretically : it is so prac- 
tically. This has ever been, and will be, the lowest priced. 

2d, Mental power. Those faculties of mind that give 
ability to manage complicated affairs, the general operations 
of agriculture, manufactures, commerce, — all services, in 
fact, that require the exercise of judgment, discretion, re- 
flection, calculation. Such power is more rare than physical 
force. It will therefore command a higher price, especially 
in a progressive state of society. To this class may be 
referred all persons of natural ingenuity, inventors, authors, 
and men of genius. Such often receive great rewards. In 
this class may be placed the greater proportion of those pro- 
fessional services which are subsidiary to production, and 
indispensable to its fullest development. 

To prepare men for the exercise of their intellectual 
powers, a considerable amount of education and training is 
necessary. Hence such powers are not only more rare, 
but more expensive, than brute force, and therefore right- 
fully command higher compensation. 

3d, Moral power. As man advances in civilization ; as 



CHAP. III.] ANOTHEE CLASSIFICATION OF WAGES. 267 

wealth, its great concomitant, increases; and social com- 
binations are multiplied, — it becomes more and more 
necessary that important trusts should devolve on individ- 
uals occupying particular stations. With all the checks 
and securities that can be devised, the greatest reliance 
must ever be placed on the character of the person to whom 
the trust is committed. Oftentimes the honor and interests 
of vast bodies of men must be committed to a single hand. 

Hence arises a necessity for something more and higher 
than physical and mental faculties or qualities combined, — 
something that shall furnish a guaranty, irrespective of all 
contrivances, that these high trusts shall be faithfully dis- 
charged. That guaranty is found in the moral power of 
the individual, — the power which gives such a control over 
appetites, passions, and propensities as affords assurance 
that under no circumstances of trial or temptation will he 
ever depart from the strictest line of duty. This confidence 
can be inspired only by the conviction that the individual to 
be trusted has firm, abiding principle ; that he will be hon- 
orable and true, not merely because it is for his immediate 
interest to do so, but because such are his sentiments and 
convictions that he cannot be otherwise ; that no change of 
circumstances will ever induce him to deviate from the path 
of rectitude. 

When men are found possessing this high moral power 
over themselves and the accidents of their position, they 
will, of course, be called to places of responsibility and 
trust. 

Now, as such men are more rare than those having only 
physical power, or physical and mental power combined, 
they will command higher rewards, — the highest paid for 
any class of services. 

The merchant must often intrust all his fortune to a 
single confidential clerk. He must put himself in the 
power of that clerk to injure, it may be to ruin, if he will. 
Hence, should he find a man to whom of all others he is 



268 DISTRIBUTION. [BOOK IV. 

willing to commit this power, he will be disposed — he can 
afford — to give him large wages. The incorporated com- 
pany, with its capital of millions, must put into the hands 
of its officers, sometimes of a single man, its whole wealth. 
And, after all the bonds and guaranties that can be devised, 
reliance must be mainly placed upon the moral character of 
the man. 

In affairs of state, in the highest public trusts, how 
much must always depend on personal honor and integrity! 
What other assurance can the people have, that their ser- 
vant may not, under great temptation, prove recreant to 
duty, and injure and disgrace himself and his country ? 
Looking at all rewards in the light of political economy, it 
is here that we find the highest plane of human effort. 
* It may be objected to this new classification of labor, that 
we confound economic with moral science, and depart from 
our appropriate sphere. We reply, that men, if truly 
moral, are so not because it is profitable, not because it 
will enlarge the value of their services, but because it is 
right, because they love integrity for its own sake. This 
must be their motive, or their morality has no reliable foun- 
dation. Yet from this cause it occurs that their services 
are more desirable, and they will receive greater remunera- 
tion, — will be paid for honesty as truly as for intelligence, 
activity, and strength. So a man must preserve his health, 
if he would receive wages for even the lowest form of labor; 
but that will not be his motive. The love of life and the 
pleasures of health will form the grand consideration in his 
mind why he should abstain from all that will impair his 
physical energies ; yet, as a consequence, he secures the 
ability to command wages, and is paid for his abstinence 
and discretion. 

We cannot, therefore, acknowledge the validity of the 
objection to that which seems to us the most natural and 
scientific classification of wages. 



CHAP. IV.] LABOE COMBINATIONS. 269 

CHAPTER IV. 

LABOR COMBINATIONS. 

In connection with the subject of wages, it seems neces- 
sary to inquire somewhat in regard to the rights of the 
laborer, since upon these his compensation must to some 
extent depend. 

Under a government acknowledging the rights of all men, 
the laborer must, of course, have the same rights as his 
fellow-citizens, neither more nor less. He asks no favor, 
and grants none. He demands the s.ame justice, the same 
freedom, accorded to others. He should be able, so far as 
law is concerned, to work when and for whom he chooses, 
and for such consideration as he can get in the great com- 
petition of industry. The law cannot say how much he 
shall accept for wages, how many hours shall constitute a 
day's work, nor how much the employer shall give him. 
Each is left perfectly free, and the competition is simply 
between labor and capital. 

But the laborer is not under obligation to act as an in- 
sulated individual, any more than the capitalist. If the 
latter is permitted, and even authorized and encouraged, 
to combine with his fellows in order to enhance the power 
and profits of capital, it is equally the right of the laborer 
to do the same, and equally the duty of the legislator to 
give him any facilities for doing this he may justly demand. 

If capital is incorporated, labor should have the same 
privilege. If favors in any case are awarded to one party, 
they should certainly be furnished to the other. 

Laborers, then, may combine, if they deem it best to act 
in concert in regard to their interests. 

As a matter of fact, they do form associations for mutual 
benefit. In England, these " friendly societies," as they 



270 DISTRIBUTION. [HOOK IV. 

are called, are numerous, and often exert a very happy 
influence. They are formed for a great variety of specified 
ohjects. One class, for example, provide, — 

1st, For assisting members when they are obliged to 
travel in search of employment. 

2d, For granting temporary relief to members in dis- 
tressed circumstances. 

3d, For the relief and maintenance of members in case 
of blindness, lameness, or bodily hurt through accident. 

4th, For the purchase of necessaries to be supplied to 
the members. 

5th, For the purpose of assuring the members against 
loss by disease or death of cattle employed in tr.ade or 
agriculture. 

6th, For the purpose of accumulating at interest, for the 
use of the member, the surplus fund remaining after pro- 
viding for his assurance. 

Some societies provide for a variety of other contingen- 
cies, — sickness, old ago, and death. These associations 
are so numerous and important in Great Britain that the 
government has appointed a registrar (John Tidd Pratt, 
Esq.) for their general supervision, and his reports are 
annually made to Parliament. All associations like these, 
if properly managed, have a tendency, not only to relieve 
the misfortunes of the laboring classes, but to enhance their 
wages by making them more independent. 

Societies are also formed for the diffusion of intelligence 
amongst these classes, and for their moral and social eleva- 
tion, — like temperance associations, lyceums, mechanics' 
institutes, &c. These, too, have the effect to influence 
favorably the rate of wages, since they tend to bring labor- 
ers more upon a level with the more favored classes, to 
increase their intelligence, and especially to divert them 
from low and degrading occupations and amusements. 

Associations of this kind will, in the progress of events, 
undoubtedly contribute more and more towards an equal 



CHAP. IV.] LABOR COMBINATIONS. 271 

distribution of the wealth which labor produces in conjunc- 
tion with capital, provided they are formed for proper pur- 
poses, and conducted in an orderly manner. 

trades' unions. 

One of the forms in which these association's make their 
appearance is that of trades' unions. The principal object 
of these, generally, is the increase of wages. The differ- 
ent trades often combine for this purpose, and endeavor 
to fix the rate at which they will work. This, it would 
seem, they have an undoubted right to do : whether it be 
good policy is another question. 

Men may mutually agree, for example, that they will work 
only ten hours per day, and will have two dollars per day 
as wages. All who voluntarily join such an agreement are 
in honor bound to keep it ; and, if the association binds 
itself to support those who are turned out of employment, 
they have also the undoubted right so to do. 

But, while all this is conceded, it does not follow, that, if a 
member violates the rules of the society, his associates may 
inflict any punishment upon him for doing so, except such 
as the law of the land authorizes. A trade's union is not 
an imperium in imperio. It has all the rights which each 
individual member has, and no more. Hence any attempt 
to inflict punishment upon such delinquent is as much an 
infringement of his rights, and of the laws of the country, 
as if it were done by an individual. 

Again : nor has a trade's union any right whatever, 
moral or legal, to interfere in any manner with those of their 
craft who do not choose to enter into their association. If 
such persons prefer to work at a less rate of wages than that 
established in the tariff of the union rather, than not work 
at all, they have the most unquestionable right to do so ; 
and any attempt to prevent them by brute force is an in- 
fringement of personal rights which government is bound to 
resist to the utmost. Such an act is merely the act of a 



272 DISTRIBUTION. [BOOK IV. 

mob, and has no justification. Nay, more : under a free gov- 
ernment, where these very men who have thus combined 
are citizens, with the right of suffrage, and, in common with 
others, elect those who enact the laws, under which they 
live, any outrage of this kind is an overt act of moral trea- 
son against republican institutions. It is a virtual declara- 
tion that these institutions have failed, and must fail, to give 
adequate protection, and therefore these aggrieved parties 
are obliged to resort to violence ; in other words, to over- 
ride the government, the Constitution, and the laws. 

STRIKES. 

The foregoing argument covers the whole ground of right 
or wrong in regard to strikes. 

Members of a trade's union, believing that their wages 
are inadequate or less than their employers can well afford, 
by mutual agreement strike for higher wages. If not grant- 
ed, they turn out. To produce effect, and aid in obtaining 
what they demand, they parade the streets with banners 
and music. Very well, so far ; for other associations do the 
same, whenever they see fit. If these demonstrations do 
not interfere with the general avocations and pursuits of the 
public, there can be no reasonable complaint. The economy 
and utility of such demonstrations is another matter ; but 
the right to make them need not be disputed. 

But when, in addition to this, a procession, instead of 
peaceably passing through the streets, proceeds to compel 
by force every person engaged in a particular trade to quit 
his employment, the case is entirely altered. The proces- 
sion has become a lawless mob, and is to be dealt with 
like any other body of men disturbing the public peace. 

All demonstrations of violence, of this kind, are in utter 
antagonism, not only to the institutions of society in gen- 
eral, but to the real and permanent interests of the party 
which makes them. They do harm, and only harm, in the 
long-run, both 'economically and morally, and degrade, in- 



CHAP. IV.] LABOE COMBINATIONS. 273 

stead of elevating, the laboring classes, who really have 
much to hope from their associations of various kinds, if 
they be peacefully and properly conducted. There is no 
one thing by which the interests of the laborer can be more 
effectually promoted than by associations for good and use- 
ful purposes, managed in a sensible and becoming manner ; 
and, on economical as well as moral and social considera- 
tions, they would then be worthy the approbation and pat- 
ronage of the capitalist, whose interests would be promoted 
thereby : but it should ever be remembered that individu- 
ality is to be interfered with as little as possible, since the 
more there is of individual responsibility, socially and politi- 
cally, the better ; the less men are called upon to resign 
their freedom of action and personal reliance and choice in 
the various duties and emergencies of life, the more advan- 
tageous to their welfare and happiness. 

But strikes cannot permanently raise the rate of wages. 
Combinations of workmen, taking advantage of the peculiar 
state of trade when commodities are in great demand, may, 
for the moment, extort, from the necessities of their em- 
ployers, an addition to their compensation ; but they gain no 
substantial advantage. When trade becomes dull, they are 
certain to be placed again in the power of the employer. 
Especially is it injurious to the interests of the workmen, 
where by strikes they have forced out of employment large 
numbers, whom they are obliged to support out of previous 
accumulations. In such cases, they consume their own 
little savings, injure the interests of those who have em- 
ployed them, and render them less able to pay wages in the 
future. 

Freedom, protection, and justice are what labor needs, 
and must have, or its condition will be depressed, and its 
productiveness diminished. With freedom, the laborer can 
work for whom he will : with the ballot, he can insure to 
himself and his interests protection and justice. 

18 



274 DISTRIBUTION. [BOOK IT. 

CO-OPERATIVE ASSOCIATIONS. 

There is yet another mode in which those who depend 
upon wages may secure very great advantages to themselves ; 
viz., by co-operative associations, formed for trading or in- 
dustrial purposes. These are already somewhat extensively 
introduced into the United States ; and, so far as are known, 
have been attended with a good degree of success. Mr. 
Fawcett (now M.P.), in his " Manual of Political Econo- 
my," has given a very full and interesting account of the 
operation of certain co-operative societies in Europe, from 
which we extract the following : — 

" The co-operative movement in England was first commenced 
at Rochdale.* About 1844, a few working-men in that town sus- 
pected, and no doubt justly so, that they were paying a high price 
for tea, sugar, and other such articles, when they, at the same time, 
believed they were not free from adulteration. They therefore said, 
' "Why should we not club together sufficient amongst ourselves to 
purchase a chest of tea and a hogshead of sugar from some whole- 
sale shop in Manchester ? ' This they did ; and each one of their 
number was supplied with tea and sugar from this common stock, 
paying ready money for it, and giving the same price for it they had 
been charged at the shops. When all the tea and sugar had thus 
been sold, they agreed to divide the money thus realized amongst 
themselves, in proportion to the capital each had subscribed. They 
found, to their surprise, that a large profit had been realized. The 
great advantage of the plan became self-evident ; for not only were 
they provided with a lucrative investment for their savings, but 
they obtained unadulterated tea and sugar at the same prices they 
had been previously obliged to pay for the same articles when their 
quality was deteriorated by all kinds of adulteration. A fresh stock 
of tea and sugar was, of course, purchased. Other laborers were 
quickly attracted to join the plan, and subscribe their savings ; soon 
the society was sufficiently extended to justify them in taking a 
room, which they used as a store, and the success of the plan fully 
kept pace with its enlargement. 

* The residence of John Bright, M.P., and where his family carry on a 
large manufacturing business. ' A. w. 



CHAP. IV.] LABOR COMBINATIONS. 275 

" In 1856, this society, now famous as the Rochdale Pioneers, pos- 
sessed a capital of ahout £12,800. The business was not long 
restricted to articles of grocery : bread, meat, and clothing were all 
sold on the same plan. Their capital so rapidly increased, that they 
were soon enabled to erect expensive flour-mills ; and a supply of 
pure bread, as well as unadulterated tea, was thus insured. Dur- 
ing the last few years, this Pioneers' society has attracted frequent 
public attention ; for it has gradually grown into a vast commercial 
institution, embracing a great variety of trades. At the present 
time (1863), its capital is £32,000, the amount of business done is 
£170,000, and the profits realized twenty per cent. The general 
management of this society, and the mode in which the profits are 
distributed, are both excellently arranged. A ready-money system 
is so scrupulously adhered to, that even a large shareholder cannot 
make the smallest purchase on credit. The managers of the busi- 
ness are chosen by the general body of shareholders ; and, in almost 
every case, ah excellent selection has been made. The accounts are 
made up quarterly, and placed before the general meeting. Lon- 
don accountants have audited these accounts ; and they express a 
unanimous opinion that no business in the country is better con- 
ducted. With regard to distribution of the profits, a sufficient sum 
is at first allotted to pay a dividend of five per cent, on the capital ; 
the remaining profits are divided on the following plan: Every 
person, when he purchases goods, receives one or more tin tickets^ 
on which is recorded the amount of his purchases. At the end of 
every quarter, each person brings these tin tickets, which form the 
record of his aggregate purchases ; and the remaining profits are 
distributed in proportion to the aggregate amount which each indi- 
vidual has expended at the store. Thirteen pence in the pound 
(equal to about five and a half per cent on the amount purchased) 
is the average amount which, in this manner, is received as a draw- 
back." 

Professor Fawcett then proceeds to give the causes of 
this remarkable financial success : — 

" The ready-money system, invariably adopted by these societies, 
has probably promoted their prosperity more than any other cir- 
cumstance. All bad debts are thus avoided ; and, where credit is not 
given, a certain amount of business can be transacted with much 
less capital than would be required if large sums were locked up in 



276 DISTRIBUTION. [BOOK IV. 

book-debts. Under a ready-money system, the same capital may be 
turned over perhaps twenty times a year ; and, if one per cent only 
is realized upon such transaction, the capital will sum an aggregate 
profit of twenty per cent in the course of the year. When goods 
are sold for ready money, they can be bought for ready money frorn 
wholesale dealers. This is always a guaranty that the purchases 
will be made on the most favorable terms. Again : the sharehold- 
ers of the society form a nucleus of customers ; and therefore, di- 
rectly business is commenced, a certain amount of trade is insured. 
If an individual commences business, he must attract customers 
either by advertising or costly shop-fronts ; he is compelled to con- 
duct his business in crowded thoroughfares, where rents are ex- 
tremely high : but a co-operative society is saved all these expenses. 
Its shareholders are its customers ; it therefore need not advertise ; 
it does not require a showy building ; for its position is rather in the 
centre of the homes of the laboring population. These and other 
advantages sufficiently account for the large profits which have 
been realized, not only by the Rochdale co-operative store, but by a 
great number of similar societies, situated in almost every other part 
of the country." 

The author here enumerates a long list of different places 
in which these stores are established, as Manchester, Hud- 
dersheld, Dover, Blackburn, &c. He then proceeds to 
state some 0/ the advantages of these institutions : — 

" The advantages which the working classes derive from a co- 
operative store are apparent. In the first place, it provides them with 
a most eligible investment for their savings. This is important, 
because the absence of good opportunities for investing small sav- 
ings operates powerfully to increase the improvidence of the poor." 

Again, he says : — 

" The co-operative principle, when applied to trade and manu- 
factures, enables the laborer to support his industry with his own 
capital, and, in this manner, to rise from the mere status of a hired 
laborer. . . . There can be no doubt that these societies promote a 
most healthy social intercourse between, workmen ; for, at frequent 
meetings, the shareholders consult each other upon matters of busi- 
ness. They have to show their discrimination in selecting the propel 
persons to be managers ; and, in fact, the experience of the Roch* 



CHAP. IV.] LABOR COMBINATIONS. 277 

dale store proves that a co-operative society can succeed in carry- 
ing out many a social improvement, which would not otherwise be 
introduced. Thus, two and a half per cent of the profits realized 
at Rochdale support an excellent reading-room and library, which 
the shareholders, as well as their wives and families, are permitted 
to use gratuitously ; the society organizes excursions, and often per- 
forms some united work of charity : not long since, its members 
presented a magnificent drinking-fountain to their fellow -townsmen. 
A co-operative store may, moreover, become a particularly jDower- 
ful agent in benefiting the working classes, because it can be con- 
ducted on the smallest possible scale. The experiment can be made 
without involving any expense : any half-dozen working-men may 
try the plan, as it was tried in 1844 at Rochdale, by clubbing to- 
gether sufficient to purchase a chest of tea from a wholesale grocer. 
If their first effort is successful, they may gradually develop their 
plan, until, at length, it becomes a great and important trading es- 
tablishment." 

The same writer gives the following account of an indus- 
trial co-operative association : — 

" A small society of co-operative masons was established in 1848, 
in Paris. This society was reproached for holding certain political 
opinions, and the government attempted to discourage it by refus- 
ing to loan any capital. This intended hostility secured its future 
success ; for the societies which were assisted by the government, 
in almost every instance, proved to be failures. The co-operative 
masons endured many vicissitudes ; and, in the year 1852, they de- 
termined to re-organize their society. It then consisted of only sev- 
enteen members, and borrowed no capital. They resolved to create 
a capital, by depositing in a common chest one-tenth of their daily 
earnings. At the end of the first year, a capital of fourteen pounds 
and ten shillings was in this manner created. At the end of 1854, 
the capital had increased to six hundred and eighty pounds ; and, 
in 1860, consisted of one hundred and seven members, and the cap- 
ital possessed by them was fourteen thousand and five hundred 
pounds. The Hotel Fould, the Hotel Rouher, the Hotel Fres- 
cati, &c, &c, were erected by this industrial association. At 
the present time, these co-operative masons are building an hotel 
for M. Girardin, on the Boulevard of the King of Rome, and an 
hotel at Montrouge, for M. Pacotte. No laborers, except the share- 



278 DISTRIBUTION. [BOOK IV. 

holders, are employed by the society. The laborers are paid the 
ordinary wages, current in the trade, and the net profits real- 
ized are proportioned in the following manner : two-fifths of these 
jjrofits form a fund, from which the annual dividend is paid ; and 
the remaining three-fifths are appropriated to provide an extra bo- 
nus on labor. The bonus each laborer thus receives is proportioned 
to the amount of labor he has performed throughout the year. No 
arrangements that could be devised would more powerfully promote 
the efficiency of labor. This is the secret of the remarkable suc- 
cess achieved by this society." 

The advantages of these associations is further stated, as 
follows : — 

" In the first place, it may be observed that the laborers receive 
the whole profits which result from their industry ; for they supply 
the capital which is required. Another most important effect seems 
likely to result from these associations ; for they appear to hold out 
a fair prospect of correcting a very disadvantageous tendency, which 
is associated with the present rapid accumulation of wealth. For 
we have previously remarked that each year the production of 
wealth is conducted on a greater scale : manufactories are enlarged, 
farms are extended in area, and in every branch of industry there 
are those that seem, from the very vastness of their capital, to mo- 
nopolize the additional profit, and thus compel the smaller producer 
to succumb. Hence, each year it becomes more difficult for the 
laborer to engage in any industry on his own account. . . . Hence, 
the industry of the country must be conducted by two distinct class- 
es ; namely, employers who supply the capital, and workmen who 
provide labor ; unless those who labor agree to form themselves 
into associations, and subscribe amongst themselves sufficient capi- 
tal to carry on production upon a large scale. It must be quite 
evident, that co-operative trading establishments, when successful, 
as it were intensify many advantages which laborers derive from 
co-operative stores. But we have separately described these two 
classes of institutions, because we think that the success of the for- 
mer may be imperilled by many circumstances which do not affect 
the latter. In fact, we have already stated, that, in the case of a 
co-operative store, success may almost be guaranteed. . . . But the 
case is very different with regard to a co-operative society carrying 
on some branch of industry for profit." 



CHAP. V.] PROFITS. 279 

This the writer shows to be more hazardous. He gives, 
in connection with this, a statement of a very successful 
agricultural co-operative enterprise, commenced some thirty 
years since, in which the results were in the highest degree 
satisfactory. 

The description here given, by Professor Pawcett, of co- 
operative societies abroad, furnishes satisfactory evidence of 
their feasibility, and the great advantages the laboring class- 
es may derive from them. If true to their interests, they 
will direct their attention to the formation of such associa- 
tions in this country. By so doing, they will violate no 
legal enactment, in no way disturb the public peace, or in- 
terfere with the laws of trade. They will simply avail them- 
selves of their just rights, for the use of the power which 
legitimately belongs to them. 



CHAPTER V. 

PROFITS. 

By the term " profits," we mean that share of wealth which, 
in the general distribution, falls to those who effect an ad- 
vantageous union between labor and capital. 

All wealth, being the product of labor and capital, would 
be divided between them, were it not necessary that still 
another agent should take part in production ; viz., an 
employer, manager, undertaker* (entrepreneur), projector, 
contractor, business man, merchant, manufacturer, farmer, 
or whatever else he may be called, whose services are indis- 
pensable. 

Capital cannot move itself; labor cannot command capi- 

* " It is to be regretted," says J. Stuart Mill, " that this word, in this sense, 
is not familiar to the English ear. Prench political economists enjoy a great 
advantage in being able to speak of les profits de I 7 entrepreneur." 



280 DISTRIBUTION. [BOOK IV. 

tal, and therefore has little power : hence the necessity for 
an employer, or business man, to effect a union, and put both 
in successful operation. Capital without labor is an infant ; 
labor without capital, a cripple. 

The parties, then, to production are, (1) the laborer ; (2) 
the capitalist ; (3) the employer, or manager. Each has a 
distinct province, and a separate interest ; and each must 
receive his reward, or share of the general product. 

This is, undoubtedly, the natural division of the subject. 
To confound the capitalist with the employer, as often is 
done, throws the whole matter into confusion. There is no 
occasion whatever for this. The man who owns the capital, 
and receives his compensation for its use in the shape of 
rent, or interest ; the laborer, who applies muscular or men- 
tal power to the production of value ; and the man who, as 
employer or manager, relieves the first from the anxiety and 
risks of trade, and furnishes the second with the means by 
which alone he can work to advantage, — are separate per- 
sons, with distinct interests. 

The capitalist, as such, has no share in the profits of busi- 
ness. He does nothing but loan his wealth, which, by the 
value of its services, brings him an income, in the shape of 
rent for real, or interest for personal estate.* If he is care- 
ful in regard to the securities he takes or the credit he 
gives, it is of no immediate consequence to him whether 
trade is dull or brisk, whether profits are high or low ; but, 
of course, it is true that the capitalist has a general interest 
in the profits of business, to this extent, — that unless prof- 
its, in the long-run and on the average, are such that the 
business man can afford to pay the usual rate of interest, 
the compensation of the capitalist, or his share in the general 
distribution, must be reduced. He must rent or loan his 
capital on such terms as those who employ it can afford, 

* The term "personal estate," in distinction from real estate (land, build- 
ings, and the like), is generally used in the United States to describe every 
kind of movable property, and all evidences of debt. 



CHAP. Y.] PROFITS. 281 

over 'and above all the charges and hazard of business, be- 
sides making a satisfactory profit. On the other hand, to 
the employer, in whatever department of business, the ques- 
tion of profits is vital. His success depends upon the 
amount he can secure, after meeting all his necessary ex- 
penditures for labor, rent, interest, taxes, insurance, bad 
debts, &c. 

It often happens that the employer (manufacturer, mer- 
chant, <fec.) is the owner, in whole or in part, of the capital 
used. This in no wise alters the case ; for then he receives 
income both for his capital and his labor, or efforts. He 
saves all the interest he would otherwise pay to the capi- 
talist ; he pays interest to himself. He may own the build- 
ings he occupies ; and in so far he is a capitalist, paying 
rent to himself. 

It is, then, by this triple alliance of enterprise, capital, and 
labor that all production is effected ; and between them, in 
the final result, it should be shared. The economical ques- 
tion is, How shall an equitable division be attained ? 

We have previously said, in relation to capital and labor, 
that there must be a just proportion of each to the most effi- 
cient production, — sufficient labor for the capital, and capital 
for the labor : so there must be sufficient enterprise, busi- 
ness talent, and tact to use both ; and the several parties 
must be left to act voluntarily, under the instincts of human 
nature and the laws of value. Indeed, the great difference 
in the wealth of nations is made by the business class : mind 
is more effective than muscle. Each party, too, must be 
protected in his just rights, and be insured against the en- 
croachments of the other. No advantage should be given 
by legal enactments to either. The capitalist should be free 
to loan his money to whom he will, and at whatever rate he 
can get ; the employe, to work for whom he pleases, and at 
such compensation as he can obtain by the competition of 
employers. If the laws allow capitalists, by concentrating 
their wealth, to increase its power, laborers should have an 



282 



DISTRIBUTION. 



[BOOK IV. 



equal right to combine their efforts ; and employers should 
be free to secure the services of either, on the best terms 
they can. 

With this perfect equality, each will certainly obtain the 
share that belongs to him. Laws in regard to this, as all 
other property relations, are not needed to direct human in- 
dustry, but to control human passion ; to prevent one party 
from trespassing upon the rights of the other. 

All these parties are equally necessary. In one respect, 
labor has the advantage, since it can accomplish a little 
without capital, while capital can produce nothing without 
labor. On the other hand, capital can rest, without extinc- 
tion ; while labor, if not employed, will soon perish by star- 
vation. 

It has been common to speak of the profits of capital, in- 
stead of the profits of business. This is a mistake which 
confounds necessary distinctions. The profits of trade, or 
business, are to be reckoned upon the amount transacted, not 
upon the capital employed. The difference between the two 
modes is often very great. 

We give the following table as an illustration of what we 
mean : — 

An Illustration of the Difference of Profits as computed on the Capital employed or 
the Business transacted. 



Capital 
employed. 


Sales. 


Rate of Profits 

on Sales. 


Gross 
Profits. 


Expenses, 
including 
Interest. 


Net Profits. 


Net Profits, 
if reckoned 

on Capital. 


Not Profits, 
if reckoned 

on I!n>incss 
done. 


$100,000 
20,000 
10,000 
50,000 


$500,000 

150,000 

30,000 

350,000 


15 per cent 

10 „ „ 

30 „ „ 

5 „ „ 


$75,000 

15,000 

9,000 

17,500 


$25,000 
7,500 
2,000 
7,500 


$50,000 

7,500 

7,000 

10,000 


50 per cent 
37i„ „ 

70 „ „ 
20 „ „ 


10 per cent 

5 !) )> 
- u 3 )) )) 

11 

-B 7) )) 



The actual transactions of business present an endless 
variety, of which the above may be taken as samples. 

The object aimed at by the business man is to get as 
large a net profit to himself as possible, irrespective of the 



CHAP. V.] PROFITS. 283 

per centum of profit on the capital employed. On his capi- 
tal, if borrowed, he pays the interest ; if he owns it, he com- 
putes the interest as a part of his expenses, reckoning the 
latter as the income on his capital. 

RATE OP PROFITS. 

There is a constant tendency, in the progress of society, 
to a decline in the rate of profits ; i.e., as has just been said, 
of profits upon business done. 

1st, From the acceleration of exchanges, or the rapidity 
with which capital is used ; in consequence of which, the 
same absolute remuneration can be obtained with less 
charge on each transaction. 

2d, From the increasing number of those who, by educa- 
tion and training, are qualified for independent business. 

3d, From increasing facilities for intercourse by steam, 
on land and sea, and the consequent diffusion of intelligence 
in regard to prices and markets. 

The rate of profit can never be arbitrarily fixed where 
there is free competition, any more than the wages of labor ; 
yet in a given country, or mart of trade, there may be an 
actual average rate which all individuals strive to attain; 
say, for example, ten per cent. As a matter of fact, such 
individual obtains all he can. He does this, especially in 
places of large trade, by charging as much advance on every 
article as he finds it will bear. If his rate is too high, he 
will find his custom fall off; or, if he has customers, they 
will be of a hazardous class, by whose delinquencies he will 
lose more than he can gain by their patronage. Then, 
again, it is practically true, that scarce any two commodities 
pay the same profit ; some, it may be, only two, some ten, 
some twenty per cent. And, further, while in the same 
street one man sells his goods at ten per cent, another is 
selling at seven and a half per cent, and is making a larger 
amount of net profits at that. Why is this ? 

First, The latter buys more shrewdly. Secondly, he car- 



284 DISTRIBUTION. [BOOK IV. 

ries on his business more by his own efforts, and with less 
expense ; and, lastly, sells, as he will be likely to do, to re- 
liable men, who most certainly discover where they can pur- 
chase to the greatest advantage. 

RAPIDITY OF EXCHANGE. 

The necessary rate of profit depends greatly on the rapid- 
ity of sales, as compared with the capital employed and the 
expense of conducting business. 

This may be shown in the following illustration : — 

A, with a capital of $10,000, which he turns every six month's, 
charges twenty per cent profit. 

B, with same amount, turns his capital once in three mouths, at 
fifteen per cent. 

C, with same amount, turns his capital every thirty days, at 
seven and one-half per cent. 

Result: — A sells $20,000 at 20 per cent $4,000 

Interest on capital $600 

Rent 600 

Labor and other expenses 800 ~ 000 

As net profit $2,000 

B sells $40,000 at 15 per cent $6,000 

Interest on capital $600 

Rent 600 

Labor, &c 1,200 ^ 400 

B's net profit $3,600 

C sells $120,000 at 7$ per cent $9,000 

Interest on capital $600 

Rent 600 

Labor, &c 2,500 3 70Q 

C's net profit $5,300 

Large sales, with small profits, or a rapid turning of capi- 
tal, is the natural tendency of trade, as population and 
wealth increase, and especially as credits are diminished. 



CHAP. V.] PEOFITS. 285 

Those who sell for cash have immensely the advantage of 
those who give long credits, particularly under a mixed 
currency, which so largely increases the hazards of trade. 

In those communities in which the people are generally 
poor, and their wants great and pressing, as in newly settled 
countries, credits are naturally much extended, and, of 
course, the rate of profits proportionally increased. This 
is known to be the case over a large part of our Western 
States. The people can afford to pay large profits, if by so 
doing they can get the use of capital, because capital pro- 
duces so large a return ; as, for example, one thousand dol- 
lars invested in the spring in ploughing the prairie, and 
getting in a crop of wheat, will, not unlikely, give a net profit, 
within six months, of one hundred per cent. But when 
such communities accumulate capital, and are able to pay 
as they purchase, they come to buy at greatly reduced rates, 
and profits fall to the minimum. This is the general law in 
all countries, though most clearly seen in new settlements. 
The average rate of profits in a country is determined by 
the same law as wages. Profits are merely wages received 
by the employer. This idea should be kept constantly in 
mind. The wages of the laborer depend upon supply and 
demand : why not the wages of those who employ him ? 
The employer is as truly a laborer as the man who toils with 
the spade, only on a higher plane. 

If there are more laborers than are wanted, wages fall ; 
if fewer, they advance : just so with employers, or business 
undertakers. If there are too many competing for profits, 
the rate will fall until the excess is driven back into the 
ranks of labor. As there are, however, comparatively few, in 
proportion to the whole number of persons capable of labor, 
who have the requisite capacity and training required for 
transacting business successfully, and fewer still who can 
command the necessary means or capital, it will follow that 
the rewards of the employer will be larger than those of the 
persons employed. But we must not forget that this differ- 



286 DISTRIBUTION. [BOOK IV. 

ence is less than at first appears, because our observation 
shows us, that, of all who undertake to trade or manufacture, 
a large majority become bankrupts ; and, consequently, the 
average difference between the employer and the employed 
is greatly reduced. 

There is, undoubtedly, a constant tendency to an equali- 
zation and reduction of profits from continual improvements 
in the means of locomotion, and the increasing intelligence 
of the people. The opening of railroads has wrought a 
great revolution in this particular. These not only greatly 
reduce the cost of transportation, but the average rate of 
profits. For example, a given town is one hundred miles 
from the mart of trade, by which it is supplied. There are 
only common roads, and those of bad construction. Eight 
or ten days are required to pass teams to and from the city. 
Under such circumstances, the people generally will be likely 
to know but little of the market value of commodities. As 
they must very rarely visit the places where merchandise is 
obtained, and, consequently, are ignorant of the worth of 
the articles they are obliged to purchase, and quite unable 
to supply themselves directly, they are charged large profits 
on what they buy. Let a railroad be put in operation, so 
that the time distance is reduced from eight or ten days to 
four or five hours, the price of all commodities in market 
will be known, and those who supply them must do so at 
a small advance ; while yet, it may be, the dealers will 
make as large aggregate profits from increased sales. 

EFFECTS ON PROFITS OF A TEMPORARY RISE OF WAGES. 

The effect of a temporary rise of wages upon profits may 
be illustrated as follows : — 

A manufacturer of kerseymeres is able to produce an arti- 
cle for one dollar per yard, for which he can get one dollar 
and twenty cents in the usual state of trade. A sudden 
rise of wages advances the cost to one dollar and ten cents. 
The result, under ordinary circumstances, will be that the 



CHAP. V.] PROFITS. 287 

manufacturer will not be able to obtain at once an advance 
equal to the enhanced cost. He will be fortunate if he can 
get one dollar and twenty-five cents for his goods, leaving 
him but fifteen cents profit. But, if the rise in wages holds 
on until the market has been cleared of the stock of goods 
on hand, the price will then be easily brought up to one 
dollar and thirty or one dollar and thirty-five cents. 

But a rise of wages, especially if occasioned by an expan- 
sion of the currency, is sure to be followed by a correspond- 
ing decline when contraction takes place. The manufac- 
turer will then gain the advantage he lost by the rise of 
wages. His goods will not fall at once as much as the fall 
in wages. This is the practical experience of business men ; 
and they can safely calculate to gain as much on the one 
hand as they lost on the other. Wages, we have previously 
shown on page 258, fall faster than commodities. It is from 
the operation of this law that the entrepreneur gains in the 
fall as much, ordinarily, as he lost in the rise of wages. 

DIVIDENDS. 

A large share of the income received by owners of capital, 
at the present day, comes in the form of dividends on stock, 
held in corporations and joint-stock companies, formed for 
almost every conceivable purpose. The introduction of rail- 
roads has caused immense investments, the income from 
which is received in dividends. How are these to be 
classed ? They cannot be regarded as synonymous with in- 
terest, or rent : they must be considered as profits. They 
are received for the profits of business done by proxy. The 
capitalist may not have the slightest agency in the affairs of 
the company from which he gets an income ; still he is a 
partner, though a limited and silent one, and receives his 
share of the profits or loss. 

It may be objected, that bank dividends must surely be 
classed with interest, since they are made up wholly of in- 
terest received for the loan of capital. This is not strictly 



288 DISTRIBUTION. [BOOK IV. 

correct. No inconsiderable share of profit to the banks of 
the United States is derived from the premiums charged for 
exchange. American banks are exchange-brokers. Be- 
sides, nearly one-half of all the income of mixed-currency 
banks is derived from the manufacture of currency, not the 
loaning of money or capital. Although the dividends of 
banks, of this kind, approach nearer to interest than those 
of ordinary business corporations, still they are most prop- 
erly classed with profits. 

Through associations, capital is largely connected with the 
industrial operations of the country, and shares directly in 
their prosperity or adversity. This result is in so far a 
favorable one, as it unites the interest of capital with the 
industry of the country. 



CHAPTER VI. 

\ 

INTEREST. 

What is paid for the use of money, or any other form ol 
loanable capital, is called " interest." Hence the term " usu- 
ry." It is all the reward that capital receives, not embraced 
in the term " rent." It ordinarily insures the return made 
for the employment of money, because loans are commonly 
made in that form ; but the idea of interest is general to all 
articles having value, but not bringing rent. 

Interest has its justification in the right of property. If 
a man can claim the ownership of any kind of wealth, he is 
the owner of all it fairly produces. Past labor has all the 
sacredness of present labor, and as justly claims its reward. 
An associate in production, it is entitled to a share in the 
product. Whoever by labor produces wealth, and by self- 
denial preserves it, should be allowed all the benefit that 
wealth can render in future production. This is the only 



CHAP. VI.] INTEREST. 289 

condition upon which the largest accumulation of wealth can 
be secured ; it presents the only motive that can withstand 
the impulse to immediate gratification. The desire to gain 
and the desire to spend are both in human nature, and are 
conflicting passions. "What one takes, the other must relin- 
quish. If, therefore, the desire to spend is unchecked, all 
wealth and physical well-being disappear in riot and waste- 
fulness. There is the further consideration, that, since to 
loan capital is to incur risk, that risk should be compen- 
sated. It has been a favorite idea with many visionary 
writers, that interest can be entirely done away with. 
Proudhon and others have speculated and theorized much 
on this subject ; but nothing can be more idle. We can no 
more get rid of interest than value : both are in the laws of 
nature. Yet this has been, in the view of many, the philos- 
opher's stone, that was to transmute all baser metals into 
gold. It is akin to the idea that credit can be made to take 
the place of value, and is sustained by the same sort of rea- 
soning as that " property is a crime ; a monopoly that must 
be destroyed." 

We will notice briefly a few of the main principles that 
govern the rate of interest the world over. 

1st, Interest, in its general rate, will be determined by 
the productiveness of labor in the community where it is 
employed. It is evident the reward of capital cannot be 
larger than the total profits of business, because it would no 
longer be used ; nor can it be equal to these profits, for 
no one would be disposed to employ it and pay out his whole 
profits for its use. Interest must, therefore, be less than 
the aggregate amount of the returns of production ; and 
finding, as it does, a competitor in the power of present 
labor, capital will be obliged to submit to an equitable di- 
vision. 

If, then, the productiveness of labor is very great, if the 
industry of the community yields easily and richly, capital 
will naturally obtain a large reward ; while, if Nature be nig- 

19 



290 DISTRIBUTION. [BOOK TV. 

gardly in her gifts, each of the parties must be content with 
a pittance. 

2d, Interest will be governed by the law of supply and 
demand This is so evident as not to require argument or 
proof, hardly illustration. Old countries abound in accu- 
mulations of capital. Interest is there found cheap. In all 
new countries, there is a youthfulness of capital ; there has 
not been time to develop the powers of production ; and hence 
interest is high. The United States of America afford a 
most striking example in point. There is a vast amount of 
uncultivated but fertile land, while the amount of capital 
with which to cultivate it is comparatively small. So of its 
manufacturing capacities. Hence there is a high general 
rate of interest. This is governed by the supply and demand, 
i.e. by the laws of value alone, and should never be inter- 
fered with by legal enactments. 

This is a lesson mankind have been slow to learn ; yet the 
most commercial nation in the world (Great Britain) has 
abolished all usury laws. The experiment was at first made 
with great caution, limiting the exemption to a particular 
kind of paper, and the time in which it should operate to a 
few months ; but it was found so perfectly satisfactory to 
the community, that, after a fair trial, the abolition of the 
usury laws was made final and complete. 

But, upon a question so much in dispute, it may be desira- 
ble to give the principal reasons why the matter of interest 
should not be interfered with by law. 

(«) When it is made a penal offence to take over a cer- 
tain per cent interest (say six), if money is worth more, as 
it often will be, it must be obtained by some indirect pro- 
cess. Most persons do not like to directly violate a law, 
however foolish or unjust they may deem it to be ; conse- 
quently, they will attempt to evade it. There is no difficulty 
in this. A note may be sold to a broker for what it will 
bring ; and the broker buys it with funds furnished by the 
capitalist, who stands behind the curtain while the borrower 



CHAP. VI.] INTEREST. 291 

pays the broker for getting; the money he might otherwise 
have obtained directly of the capitalist himself. The law 
has not prevented the usury, only increased the rate. The 
broker feels no responsibility ; for he is only an agent be- 
tween the parties. The capitalist has no scruples ; for he is 
not known in the transaction. Instead of this, the borrower 
and lender should be brought face to face, in an open mar- 
ket, where each could be protected by law in the transac- 
tion ; and then a fair, unrestricted competition would assure 
the lowest rate of interest, obtained most economically. 

But for usury laws, the current rate of interest would be 
as well known as the price of stocks or corn or wool, and 
would, like them, be determined by the laws of trade ; and 
men would act as intelligently and as freely as in the pur- 
chase of merchandise. Freedom is as essential in the 
disposal of money as in the intercourse of nations. To 
hamper it with laws regulating the rate at which it shall be 
loaned, is as absurd, and as repugnant to the laws of wealth, 
as to fix the price of wheat or cotton. 

(b~) Usury laws create an injurious distinction between 
different kinds of mercantile paper, and thus occasion em- 
barrassment and loss to borrowers. 

For example, the law says in Massachusetts that only six 
per cent interest shall be taken by the banks.* But money 
may be worth twelve per cent ; and there are ten applica- 
tions for it, at that rate, to one that can be supplied. What 
is the result ? Why, the bank will make no loans except 
upon such paper as it can charge for exchange. Exchange 
is legal, whether it is real or fictitious. A and B apply for 
discount at a bank in Boston. A offers notes of the most 
undoubted character, payable in Boston ; B offers notes or 
drafts payable in New York, and he gets accommodated. 
His drafts have sixty days to run ; he is charged one per 
cent exchange, and thus pays twelve per cent interest. A, 
having only notes on which no such exchange can be legally 

* This law was abolished in 1867. 



292 DISTRIBUTION. [BOOK IV. 

charged, must " go into the street," and employ a broker to 
sell the notes for him at the best rates he can. 

This state of things occasions great annoyance and loss 
to borrowers ; yet it must continue so long as usury laws 
exist. 

(c) Usury laws are the principal cause of compulsory 
deposits, or deposits made to secure large discounts. These 
are, as we have shown, exceedingly burdensome to the busi- 
ness community, and most dangerous to the currency. If 
the rate of interest, as at the Bank of England, was left 
entirely to the state of the money market, these deposits, 
now peculiar to American banking, would disappear. If 
every man could borrow money at what it was worth, there 
would be no motive to bribe moneyed institutions indirectly. 

3d, Interest will be influenced largely by the safety or 
hazard pf capital. This will depend, — 

(a) Upon the moral character of the people, whether 
essentially honest or dishonest, whether honorable or dis- 
honorable, whether industrious, frugal, and temperate, or 
otherwise. 

(b) Upon the general thrift of the community ; for how- 
ever well disposed to pay, if decay and decline are general, 
the hazards of capital must be greatly increased. It must 
share in the general losses of business. 

(c) Upon the justice and efficiency of the laws by which 
the rights of property are secured, and the obligation of 
contracts enforced. This, as can readily be seen, is one of 
the most important considerations in regard to the safety 
of loans ; and, of course, the rate of compensation in the 
shape of interest. 

4th, Again, the uniformity of the rate of interest, and its 
general average, will depend mainly upon the soundness of 
the currency. If it consists wholly of value, — that is, if the 
credit element constitutes no part of the circulating medi- 
um or standard of value, — the rate of interest will be as uni- 
form and as low as the laws of trade admit. The rate can 



CHAP. VI.] INTEREST. 293 

never be absolutely fixed at one point ; yet, where no credit 
is used as currency, the credits of the country will be so 
based upon values that the vacillations will be very mode- 
rate. They were very slight in Europe until within the 
last thirty years. 

We have already shown, when speaking of a mixed cur- 
rency,* how frequent and excessive are the fluctuations in 
the rate of interest in the United States. In no other civil- 
ized country have they been so great, for the sufficient rea- 
son that no other country has a mixed currency so deficient 
in the element of value. 

We have shown, at the place referred to, that these varia- 
tions have been from three and one-half to thirty-six per 
cent. Now, no commodity, in time of peace, has varied to 
an equal extent. The reason is, that commodities are not 
wanted to pay notes ; but, to meet pecuniary engagements, 
money is, and must be had. 

Under a currency in which credit is the principal element, 
the fluctuations in interest are in proportion to the extent 
of that element ; because, as we have shown, a mixed cur- 
rency, whenever there is any panic or distress for money, 
withdraws from circulation with a rapidity proportionate to 
its weakness, or want of value. Hence the frightful revul- 
sions we have witnessed. And we may doubtless expect 
that these will increase in force and frequency in the future, 
since the mixed-currency system, once almost exclusively 
confined to England, France, and the United States, is being 
extended throughout the commercial world. The risks of 
credit will therefore be greater, and the average rate of inter- 
est will, so far as risk is concerned, be enhanced. 

But, in regard to a legal rate of interest, it may be asked, 
whether a limit should not be established by law, in all cases 
where the parties have not themselves agreed upon one. 
Certainly, it would seem desirable and proper, that, in the 
absence of all agreement or contract, the law should say 

* See Diagram No. 6, p. 197. 



294 DISTRIBUTION. [BOOK IT. 

that a given rate should be awarded. This would not be 
regulating the rate of interest, but establishing justice be- 
tween the different parties in those cases where, from any 
cause, no fixed rate of interest had been agreed upon. This 
legal rate would properly be the general average rate ob- 
tained for the use of money. 



CHAPTER VII. 

RENT. 

Rent is paid for the use of land and its appendages, 
which together are called "real estate." The question of 
the rent of land is of much less practical importance in the 
United States than in Europe, since it is here generally held 
in fee simple by those who cultivate it. Yet, as an economic 
question, it deserves consideration. And there is an espe- 
cial inducement, since we certainly have in this country the 
best opportunity to investigate, in their simple primitive form, 
all the phenomena connected with it. Constantly entering 
upon new lands, we have exhibited for our observation the 
working-out of problems which long puzzled the philosophers 
of the old world. 

1st, Rent implies ownership, since no one would pay for 
the use of that to which all had an equal title. This may 
be called the first condition. 

2d, It implies society, so that more than one person shall 
desire I lie use of the same land or appendages. If exchange, 
as M. I Jastiat says, "is civilization," rent is society. This 
is the second condition. 

From our definition, it will appear that rent is paid («) for 
land, (ft) for whatever is added to its value or desirableness. 
We cannot separate the two considerations, nor would it 
be of practical utility if we could ; as, from what we have 



CHAP. VII.] RENT. 295 

already endeavored to show, value is not derived from the 
gifts of nature, but the labor of man : " land, water, steam, 
electricity, and the like, confer no value." 

Land may be said to be the foundation of rent ; and, since 
the rightfulness of appropriating it has been disputed, it may 
be proper to remark that we deem it a sufficient answer, that 
appropriation is indispensable to the production and accu- 
mulation of wealth, to the progress of civilization, and the 
welfare of the human race : therefore it is right. 

Man, in his original or savage state, is a hunter. He 
needs no appropriation of land ; for he roams at large through 
the forest. He accumulates little or nothing ; and it is of 
small importance where he builds his temporary cabin. His 
means of living are precarious ; he is often exposed to star- 
vation, has nothing permanent, pays no rent, and population 
but slowly increases. 

Nor in the second or nomadic condition, when man be- 
comes a shepherd, does rent make its appearance. His busi- 
ness is no longer mere destruction, but preservation and 
use. This elevates his condition ; the employment has a 
far more ennobling effect upon character ; higher faculties 
and better feelings are developed. But still he lives in a 
tent, and removes from place to place to find pasturage for 
his flocks. In the natural progress of events, he becomes an 
agriculturist. His chief business now is to till the ground. 
How can he do this without preparation of the soil from 
which he is to draw his sustenance ? And why should he 
do this, if another may at will dispossess him of his labors ? 
The land must be divided, appropriated, and held by some 
tenure that can be relied upon ; and, when this takes place, 
rent makes its appearance, and increases in intensity as man 
becomes more and more advanced in social condition ; for 
with agriculture come the mechanic arts, manufactures, 
commerce, villages, towns, cities, — civilization. 

We now come to the elements which enter into the rental 
of land. 



296 



DISTRIBUTION. 



[BOOK IV. 



THE FIRST ELEMENT OF RENT. 

Location. — This grows out of the social condition of man, 
to which we have alluded. If men lived as isolate beings, 
and there were land enough for all, and the whole equally 
fertile, there would be no rent ; but, once gathered into vil- 
lages and communities, rent would make its appearance, 
although there were as much land as all desired, and each part 
equally productive. 

This point we shall endeavor to make plain by an illus- 
tration.* A colony of thirteen families settles along the 
shore, where all the land is unclaimed, and immigrants have 
only to choose where and how much they will occupy. We 
will suppose the land all equally fertile, agreeable, and ac- 
cessible. In point of fact, there shall be no natural differ- 
ence between one lot of one hundred and sixty acres (what 
each family desires) and another ; absolutely no choice aris- 
ing from any thing appertaining to the land. They accord- 
ingly lay out thirteen lots half a mile square. This allot- 
ment and location upon the shore we represent as follows : — 



2 


3 


4 


5 


6 


7* 


8 


9 


10 1 11 

1 


12 



13 



In this arrangement, it will be seen, the lots commencing 
on the left are numbered 1 to 13. No. 7 is, of course, 
the middle lot. 

Now, all being equally eligible, the land equally accessi- 
ble and good, and there being as many lots as settlers, and 
each as large as any one desires, will there be any value 
to them? Yes: because all will prefer No. 7, for they 
perceive that it is most desirable, inasmuch as it is cen- 
tral ; and, if public buildings are erected for the accom- 
modation of all (schoolhouse, church, &c), they must be 

* This illustration was given by the author in the " Merchant's Maga« 
zine/' in I860, vol. xlii. p. 306. 



CHAP. VII.] EENT. 297 

placed on that lot. If a landing-place is made, or a ware- 
house put up, for the commerce of the settlement, it must 
be on No. 7 ; for the obvious reason that it is the point at 
which the whole population can most readily assemble, and 
it thus forms the natural centre of business. 

All this is so apparent, that each man prefers No. 7 ; 
but only one can have it. What follows ? It must be 
sold to the man who will give the most for it. Some one 
will give one hundred bushels of wheat, or its equivalent, — 
six bushels rent per annum. All this does actually happen 
in every case of new settlement ; not, indeed, in a manner 
always so distinct and striking as in the case we have sup- 
posed, but hi principle as certain and absolute. 

If this is so, we have established the fact, that, though all 
land were equally fertile, and there were enough for all, and 
all equally desirable in every other particular, yet that rent 
would arise from the social wants of man, which make mere 
location a circumstance affecting its value, and create a 
rental independent of all other considerations. 

THE SECOND ELEMENT OP RENT. 

Difference of Fertility. — We will suppose four different 
tiers of land, of unequal fertility. The first will yield forty 
bushels of corn ; the second, with the same labor, thirty ; 
the third, twenty ; the fourth, ten. 

Now, while there was enough land of the first to produce 
all the corn wanted, nobody would give any rent for the first 
tier on account of its fertility ; but wlien, by the increase of 
population, it became necessary to cultivate No. 2, which 
would only yield thirty, No. 1 would command a rental of 
ten bushels, because a man might as well give ten bushels 
rent for No. 1 as to cultivate No. 2 without rent. 

When, again, necessity compelled the cultivation of No. 
3, No. 2 would pay a rent of ten bushels, and No. 1 of 
twenty bushels. And further, when tier No. 4 must be 



298 DISTRIBUTION. [BOOK IV. 

brought under culture to produce the quantity of corn 
needed for consumption, then, as it would with equal labor 
produce but ten bushels, No. 1 would yield a rent of thirty, 
No. 2 of twenty, and No. 3 of ten ; while the last, or No. 4, 
would afford no rent.* 

THE THIRD ELEMENT OF RENT. 

We will further suppose, that, from the increase of popu- 
lation, more corn is wanted than can be raised ; and, con- 
sequently, importations are made at an increased price, — 
equal, say, to fifty per cent. Now if, for the sake of con- 
venience, Ave take the price of corn to have been originally 
one dollar a bushel, and to have advanced to one dollar and 
fifty cents, it will come to pass that tier or quality No. 1 
will have a rent of $45 ; No. 2, of $30 ; No. 3, of $20 ; and 
No. 4, which now for the first time produces rent, of $5. 

This represents the condition of Great Britain, which, 
besides raising all the wheat her highly cultivated fields can 
profitably produce, imports some eighty millions of bushels 
annually. This causes a large increase of prices ; conse- 
quently, of money rent. 

FOURTH ELEMENT OF RENT. 

Application of Capital to Land. — This is done in various 
ways, — by the use of fertilizing materials, drainage, deep 
ploughing, &g. For every such appliance, wisely made, a 
rent is received, supposed to be equivalent to the expendi- 
ture incurred. 

And here it may be found that the same expenditure, 
applied to the different qualities of land, produces unequal 
results. Five dollars, expended per annum on No. 1, may 
return but a profit or additional rent of eight dollars ; while 

* Mr. Ricardo, we believe, first brought out tliis principle clearly in his 
"Political Economy," London, 1819. 



CHAP. VII.] RENT. 299 

the same amount, applied to No. 2, will give seven dollars ; 
or to No. 3, will give six dollars, &c. 

This will cause a variation in the relative rentals of the 
different qualities or tiers of land we have supposed. 

Improvements, more or less permanent, are investments 
of capital in real estate, changing the income from the form 
of interest to that of rent. They are made to an immense 
extent in the older countries of Europe. Their profitable- 
ness depends, like that of all other investments, upon the 
wisdom with which they are made : but men are more dis- 
posed to invest capital in real estate, other things equal, 
than in any thing else, for the reasons that it has the great- 
est security ; that it gives a certain degree of social impor- 
tance to the holders in all countries, and, in some, confers 
political rights and privileges. 

LAND APPENDAGES. 

We have, thus far, noticed only the rent of land, without 
reference to what may be placed upon it for other purposes 
than direct production. 

"We now come to speak of real estate, consisting of dwell- 
ings, stores, warehouses, and the like. 

When buildings are placed upon farms, they form a part 
of the preparations which are indispensable to agriculture ; 
and, if erected with suitable reference to economy, will add 
to the value of land as much as shall be equal to their fair 
annual rent. Farming cannot be carried on without build- 
ings ; therefore, so far as buildings are absolutely neces- 
sary, they will command a rent as certainly as the land 
itself. This must be true ; and yet all know that " improve- 
ments," as they are called, in the shape of buildings, seldom 
increase the value of farms in proportion to their cost. For 
example, if the land alone is worth three thousand dollars, 
and buildings are put up costing two thousand dollars, 
the whole will not, ordinarily, sell for five thousand dol- 



300 DISTRIBUTION. [BOOK IV. 

lars. Facts of this sort are observed everywhere. Farms 
may, as a general rule, be bought, especially in all the older 
States, at much less than their cost, after making all due 
allowances for depreciation of buildings, &c. We observe, 
first, that buildings are not generally put upon farms for the 
purpose of selling or letting them. They are almost inva- 
riably erected by the owners of the land, in order to create 
for themselves a home. To make that home pleasant and 
desirable, a dwelling is erected according to the tastes of 
the owner and his family, rather than the direct profit of the 
farm. There is a natural and becoming competition among 
agriculturists to have pleasant, and, as far as may be, elegant 
residences. Hence, they build upon a more expensive scale 
than the business of agriculture will fully justify ; and though 
they may be able to keep on, and even thrive, with their 
establishments, these are, nevertheless, a heavy charge upon 
their industry. Whenever, therefore, such farming proper- 
ties must be sold, the purchaser will rarely, if ever, give 
more than a fraction of the original cost of the buildings. 
If, as is generally the case, he must make the money off his 
land to pay for the estate, he cannot afford the cost of build- 
ings erected to gratify the taste of somebody else. He gets 
the extra improvements gratis, really paying only for the 
useful and necessary. 

And, in the competition of cultivation in a community 
like the United States, it is to be remembered that its agri- 
culture is a unit ; that the products of the accessible and 
fertile prairies of the West are brought into the same mar- 
kets as those of the hard and sterile hills of New England. 
And it is also to be taken into account, that a farm in Illi- 
nois, for example, with a productive power of five thousand 
bushels of corn, will probably not have upon it buildings 
worth more than one thousand dollars ; while on many 
Eastern farms, of a productive power of but two thousand 
bushels, the buildings may have cost three thousand dollars. 
Now, as these farms are, in fact, competing in the same gen- 



CHAP. VII.] RENT. 301 

eral markets, it is clear that the extra expenditures upon 
Eastern farms can pay but little, if any, rental, though they 
may be very pleasant to the occupant. 

It is on the same principle that the amount expended in 
clearings, building walls around farms, and the like, do not, 
in the aggregate, return much rent or income, compared 
with their cost. They become, in the progress of years, to 
a considerable extent, like the gifts of nature, gratuitous. 
This is true of all countries, at all times. 

In cities, where the value of real estate consists princi- 
pally of buildings, and improvements made upon the land, 
we find that the land itself feels the operation of the first 
cause of rent or value, viz. location, far more intensely 
than anywhere else. An acre of land, once of the value of 
fifty dollars for agriculture, becomes worth five hundred 
thousand dollars for city purposes. Such, and even more 
extraordinary, instances may be found, showing to what ex- 
tent the principle of location may be carried. The estimated 
wealth of cities consists, to, a considerable extent, of the 
appreciation in the value of land which the increasing den- 
sity of population and the concentration of business enter- 
prise has occasioned. 

Investments in commercial cities depend, of course, for 
success, upon commercial prosperity. Changes likewise 
take place in the business centres of every great city. 
There is much of mere whim and fashion in this ; but, 
whether the commerce and trade of the city moves " up 
town " or " down town," rents move with it. 

City property, in all thrifty communities, is sure, on the 
whole, to advance in value with the lapse of time ; and hence 
it is always a favorite investment. Yet so great is the com- 
petition, so large the amount of capital in cities, that the net 
average rental is probably not greater than the ordinary rate 
of interest. Rents are based on permanent property that 
requires much care ; interest, upon securities that may prove 
worthless, but which demand but little attention. 



802 DISTRIBUTION. [BOOK IV. 

The absence of all restrictions upon the ownership and 
transfer of landed property and real estate, of all entails and 
mortmain holdings, makes the question of rent one of small 
practical importance. Where owning is the rule, and hiring 
the exception, as is the case with us, rents regulate them- 
selves ; or, in other words, are governed entirely by the 
operation of the laws of value. They advance or recede 
with trade and population. 



CHAPTER VIII. 

WAGES, RENT, INTEREST, AND PROFITS, AS RELATIVELY AFFECT- 
ED BY CURRENCY INFLATION. 

It is an important fact, not to be overlooked in our exami- 
nation of incomes derived, from wages, rent, interest, and 
profits, that all of these are not only greatly affected by the 
condition and character of the .existing currency, but also in 
very unequal degrees. We have already spoken of the in- 
fluence of an inflated currency upon wages and interest ; but 
we are now to show its unequal operation upon all these 
different kinds of revenue. 

The enormous inflation of currency during the rebellion 
has given a most favorable, because a most striking, illustra- 
tration of the degree in which different interests may be 
affected by any inflation. 

Take, for example, the years 1864 and 1865. Wages 
were, on an average, fifty per cent above their usual rate. 
Where a skilful workman had previously obtained two 
dollars a day, he now got three : where the common laborer 
got one dollar, he now got one dollar and a half. From 
extensive inquiry and personal observation, we are satisfied 
that the rise of wages, take the country through, was equal 
to fifty per cent : such we have found the uniform testimony 
of employers. 



CHAP. VIII.] WAGES, KENT, ETC. 303 

Rents, during the civil war, except in some large cities, 
advanced but little, on an average, throughout the country: 
it is much to be doubted if they advanced more than ten, 
certainly not more than twenty, per cent. 

The rate of interest advanced generally from 6 per cent 
to 7.30 ; but this was mainly from the action of the govern- 
ment, which negotiated large loans at that rate, and con- 
sequently fixed that as a general standard. Yet, of the 
immense amount loaned on mortgage, it is doubtful if a 
tenth part of it has been raised beyond what it was pre- 
vious to the war. But we may safely assume that the rise 
of interest has been from 6 to 7.30 per cent, or about twenty 
per cent. 

Profits may be safely estimated, during 1865, at a hun- 
dred per cent higher than ordinary ; that is, where they 
were ten per cent on the business transacted, they were in- 
creased to twenty per cent. This we suppose a very low 
estimate. To recapitulate : — 

Interest and rent, the remuneration of the capitalist, 

advanced 20 per cent. 

Wages, the remuneration of the laborer, advanced . 50 per cent. 

Profits, the remuneration of the business man, ad- 
vanced 100 per cent. 

What is the result of this ? Who wins, in consequence of 
this rise of wages, interest, rents, and profits, occasioned by 
the inflation of the currency ? Prices rise, as we have seen, 
to an unprecedented height ; say, one hundred and twenty 
per cent. Then we will suppose that — 

A, the capitalist, has an income from interest and rent . $4,000 
Gains twenty per cent by rise of rate 800 

Whole income in currency $4,800 

If he expends this amount in general commodities, at the 
advanced prices we have stated (one hundred and twenty 
per cent), he can only purchase with his $4,800 the same 



304 DISTRIBUTION. [BOOK IV. 

commodities lie could have obtained before the general rise 
for $2,181.81. 

From original income $4,000.00 

Deduct 2,181.81 

Loss by change of prices $1,818.19 

equal to a loss of 45.4 per cent, notwithstanding the nomi- 
nal rise of twenty per cent in his income. 

And now as to the laborer. His wages were three hun- 
dred dollars : they are now four hundred and fifty dollars. 
This last sum is laid out in commodities, and brings him 
$204.54 worth, as reckoned at the prices before the rise. 
So, from $300 deduct $204.54, and his loss (in commodities) 
is found to be $95.46, or nearly one-third (31.82 per cent) 
of his sound-currency wages, or what they were before the 
expansion. 

But how with regard to the third party, V entrepreneur, — 
the merchant, manufacturer, &c. His income, at first, was 
$10,000 : it is now $20,000. If laid out in commodities, 
the $20,000 would purchase, at the advanced prices, but 
$9,090.90 worth ; which sum deducted from $10,000, his 
original profits, will give a loss of $919.10. 

It is not to be presumed, however, that the whole of the 
income of the business man is expended in commodities, 
but a large share added to the capital. Suppose, before the 
rise of profits and prices, his expenses were five thousand 
dollars, and he purchases the same commodities now. He 
will then expend eleven thousand dollars, leaving him nine 
thousand dollars to add to his capital ; while, before the 
general rise, he added only five thousand dollars. So that 
he is making a net gain~of eighty per cent upon his income. 

Recapitulation, on the foregoing suppositions : — 

The capitalist makes a loss of 45.4 per cent. 

The laborer makes a loss of 31.8 per cent. 

The business man makes a gain of 80 per cent. 



CHAP. VIII.] WAGES, RENT, ETC. 305 

Or, to state the result in another form : — 

The capitalist gets but 54.4 on the dollar of his just due. 

The laborer gets but 68.2 on the dollar of his wages. 

The business man gets 180 cents where before he got $1.00. 

This statement, which we think will be found correct in 
principle, and approximately so in the application we have 
given it, shows the position of each party in reference to the 
change in the standard of value occasioned by the war ex- 
pansion of the currency. The two first classes lose, — the 
capitalist most heavily, but the laborer, perhaps, most dis- 
tressingly ; because, as a general fact, the latter must ex- 
pend all his income, and, under such circumstances, can 
get only about two-thirds of the commodities to eat, drink, 
and wear which he could obtain with his wages under a 
sound currency. But one of the classes mentioned is get- 
ting rich ; viz., that engaged in trade, manufactures, and 
general business. Nor will this class, perhaps, in the end, 
be so greatly benefited as might be at first supposed ; for 
it must sustain the entire loss which will take place upon 
all the merchandise of the country, as the currency comes 
down to a specie standard. One class we have omitted ; 
viz., speculators. To them, an expansion like that we have 
experienced affords a golden and most plentiful harvest ; and 
they are not slow to enter the field of labor and fruition. 
To them an expansion is always a good ; for it necessarily 
causes a rise of prices, and of course an opportunity for 
speculative operations. Expansion warms them into life 
and activity : contraction, to a sound standard of value, sus- 
pends their animation. 

Upon certain facts, in regard to this ma/tter, all will doubt- 
less be agreed : — 

(a) That those who live on fixed incomes from rent, In- 
terest, or salary, were never so straitened as during the 
war inflation. 

20 



306 DISTRIBUTION. [BOOK IV. 

(5) That laborers got less commodities for their services 
than before the expansion. 

(c) That merchants, manufacturers, and business men 
generally, made extraordinary profits. 

(d) That speculators flourished beyond all precedent. 
But the importance of all these facts and considerations 

consists in this, — that all we find to be true, theoretically 
and practically, during the great expansion occasioned by 
the war, has always been true, in degree, during every expan- 
sion of the currency, though never before so palpable, be- 
cause never before so excessive. 

We have assumed that the capitalist and laborer expend 
their entire incomes ; but so far as a part is saved, in so far 
they will avoid the loss they would otherwise suffer in pur- 
chasing commodities. 



CHAPTER IX. 

TAXATION. — PRINCIPLES OF TAXATION. 

Since government, or social organization, is among the wants 
of man, as truly as food or clothing, we must recognize 
it in the science of political economy, and provide for it. 
Government implies functionaries and expenditures. How 
shall these be maintained ? Evidently by the contributions 
of all, for all are interested in its existence. 

It may, therefore, rightfully claim a share of all that labor 
and capital have created. 

The aggregate of all sums collected by government is 
called its Revenue ; the system by which it is collected 
is called Taxation. 

Although the single object of taxation is to obtain a given 
amount of wealth (generally in the form of money), yet the 
modes by which that object may be secured are various. 



CHAP. IX.] TAXATION. 307 

In ancient times, taxation was often imposed by the arbi- 
trary fiat of the ruler, with little or no reference to equity, 
or its effect on the prosperity and happiness of the people ; 
but, in modern civilization, it has come to be regarded as 
altogether the most difficult and delicate task government is 
called upon to perform. 

The question of taxation, in its various bearings, is now 
made the subject of examination and discussion in all 
legislative bodies; and taxes are imposed, in all constitu- 
tional governments, not at the caprice of the ruler, but by 
the representatives of the people. 

Until within a few years, the people of the United States 
have been so fortunately exempt from heavy taxation, that 
it has been felt to be a matter of small consequence what 
the expenditures of the government amounted to, and still 
less whether they were wise and necessary. That day has 
gone by, probably not soon to return. 

If, then, the property of the citizen must be taken to meet 
the exigencies of government, it becomes highly important 
that those from whom it is taken should feel that it is equi- 
tably done. Nothing in relation to all the acts of govern- 
ment is more to be desired than that its mode of raising a 
revenue should be so wisely and economically arranged, so 
manifestly just and equal, and so well understood by all, 
that no opposition to its demands shall arise from a sense 
of oppression. 

Desirable as this would be under any form of govern- 
ment, it is manifestly quite indispensable in a country where 
there is no force superior to the public will, and where it is 
certain no taxes can be collected but such as are believed to 
be both necessary and just. 

In the distribution of wealth, as has been before stated, 
government makes a peremptory claim to so much as its 
necessities, real or supposed, may require. 

This claim is not only peremptory, but prior to every 
other claim. The laborer must contribute a part of his 



308 DISTRIBUTION. [BOOK IV. 

wages ; the business man, of his profits ; and the capitalist, 
of his interest, or rent. 

Every man knows, or should know, that when he creates 
any kind of wealth, a share of it belongs to government. 
He, in fact, creates a fund out of which government is to be 
supported. For example, should a man pre-empt a section 
of land on the western prairies, and by his labor make it of 
the value of ten thousand dollars, government has a lien 
upon it equal to all the taxation it may choose to impose. 
The value of the farm is just so much less than it would 
otherwise be, by the burdens which it is known the govern- 
ment will lay upon it. For example, if the owner could sell 
it, free of all taxation, instead of ten thousand dollars, he 
could get, say, eleven thousand dollars for it. If we sup- 
pose that the annual tax imposed on the farm will be equal 
to the income on one thousand dollars, then the farm is 
worth one thousand dollars less on this account. 

If the seller buys another farm, or any other property, 
with his ten thousand dollars, he gets it at just the same 
reduction as he sold his own farm ; and, for the same rea- 
son, all property, whether personal or real, whether land or 
merchandise, is exchanged under these conditions ; and 
therefore all parties creating wealth are placed on a 
level. 

The paramount question, in regard to taxation, is, On 
what principles shall it be founded ? Adam Smith, in his 
"Wealth of Nations," written almost a century ago, laid 
down four maxims, or principles, which have been so gen- 
erally concurred in from that day to this, that, as J. Stuart 
Mill says, " they have become classic." 

I. " The subjects of every state ought to contribute to the sup- 
port of the government, as nearly as possible, in proportion to their 
respective abilities ; that is, in proportion to the revenue they enjoy 
under the protection of the state. In the observation or neglect 
of this maxim consists what is called the equality or inequality of 
taxation." 



CHAP. 12.] TAXATION. 309 

In examining this proposition, our first inquiry is, What 
is meant by " subjects " ? We answer, Every inhabitant, 
old or young, male or female. Women ? Certainly : if 
they have a revenue or income, they are as justly bound to 
contribute to the government as men, and in the same pro- 
portion. Many women have large wealth : why should it 
go untaxed ? Children ? There are some such who are 
millionaires : why should they be exempt ? 

Idiots, lunatics, cripples ? Yes, if they have " revenues." 
Many such persons have large estates, which should contrib- 
ute to the public treasury. 

It is not the ability to hear or see or walk that is taxed, 
but the income, or " revenue." 

We next notice the condition mentioned, " as nearly as 
possible." 

This implies that it may not be practicable to secure per- 
fect equality ; indeed, we know it is not, but such should 
be the aim of government. 

H. " The tax which, each individual is bound to pay ought to be 
certain, and not arbitrary. The time of payment, the manner of 
payment, the quantity to be paid, ought to be clear and plain to the 
contributor, and every other person." 

(a) " Certain, and not arbitrary." By this, Dr. Smith 
evidently meant that the taxes should be assessed by com- 
petent authority, and upon fixed and well-known principles. 
In many countries, taxes have been, and in some are still, 
farmed out in gross to a publican, or tax-gatherer, who, 
under the authority of government, imposes such sums as 
he pleases to exact. 

(5) The time of payment should be " clear and plain." 
The citizen should know when he pays ; be conscious of the 
fact that he is paying the government a certain sum at the 
time he actually does it. Otherwise, he will be liable to 
great impositions, in one form or another. 

(c) " The manner and the quantity plain." This for 



310 DISTRIBUTION. [BOOK 17. 

the same reasons as just stated. He certainly ought to 
know how he pays, and hoiv much. 

(d) Should be known " to the contributor, and everybody 
else." In the method of taxation, the people are joint part- 
ners : what one does not pay, another must. If A pays less 
than he should, B and C must pay more ; hence the right 
of every man to know, not only what he pays, but what his 
neighbor does. Otherwise, how can he judge whether he is 
overtaxed or not ? 

It is on this account that the publication of tax-lists is a 
duty on the part of the taxing power. Then, if any prop- 
erty is omitted by accident or design, it will probably be 
found out ; for, being a copartner, each man is interested 
in the taxes of every other, and has a right to know what 
they are, and will or ought to give notice of any omission 
or incorrect valuation. 

III. " Every tax should be levied at the time, or in the manner, 
which is most likely to be convenient to the contributor to pay it." 

As, for example, when the harvest has been secured, and 
is ready for market ; when the fisherman returns with his 
" fare," &c. This, though not a very important considera- 
eration, will readily be admitted as proper. 

IV. " Every tax ought to be so contrived as to take out and 
keep out of the pockets of the people as little as possible, over and 
above what it brings into the treasury of the state." 

Although the soundness of this principle would seem in- 
disputable, and will doubtless be theoretically admitted by 
all, yet Dr. Smith proceeds to enumerate several modes 
in which the opposite result may be brought about. 

First, By levying the tax in such a manner that a great 
many officers will be required for its collection, who will 
consume a great part of the produce of the tax. This will 
depend in great measure on the machinery employed in col- 
lecting the public imposts. 



CHAP. IX.] TAXATION. 311 

Second, By diverting a portion of the labor of a commu- 
nity from a more to a less profitable employment. For 
example, so heavy a tax might be laid on carriages as to 
reduce their use or consumption to such an extent that the 
manufacturer might be compelled to go into some other busi- 
ness less productive. This has often been done by unwise 
legislation. 

Third, By attaching such heavy duties as to occasion 
smuggling, and thus create a multitude of officers to guard 
the revenue. 

This result has often been brought about in European 
countries, and is now beginning to be seriously felt in 
the United States, under the heavy duties at present im- 
posed. 

Fourth, By subjecting the people to frequent and inquisi- 
torial visits, and interruptions in the pursuit of business and 
in their domestic affairs, thus causing annoyance and dissat- 
isfaction. 

We now acid still another principle, which, though not 
among those laid down by Dr. Smith, has been adopted 
in every country having any considerable taxation : — 

V. The heaviest taxes should be imposed on those commodities, 
the consumption of which is especially prejudicial to the interests 
of the people. 

Having stated the maxims or principles which should 
govern the imposition of taxes, we now come to consider 
the different forms of taxation which have been adopted, 
and, to a great extent, are still in use, by the different gov- 
ernments of the world, in order to ascertain in how far they 
conform to principles universally admitted as correct. 

FOEMS OF AMERICAN TAXATION. 

Preliminary to an examination of the different modes of 
taxation, it may be proper to say, that there are, in the 
United States, two general systems; viz., by national and 



312 DISTEIBUTION. [BOOK IV. 

by State authority. The national government imposes taxes 
in every form, direct and indirect, except upon the poll. 
The State governments generally rely upon direct taxation ; 
and the poll-tax is one of the forms adopted. 

Under State authority, counties, cities, towns, and school- 
districts impose taxes ; so, also, parishes and religious cor- 
porations : but the latter, generally, only on voluntary mem- 
bership. 

Taxes may first be divided into two kinds, — direct and 
indirect. A direct tax is demanded of the person who it is 
intended shall pay it. Indirect taxes are demanded from 
one person, in the expectation that he will indemnify him- 
self at the expense of others. Such are customs and excise. 

In our further examination of the subject, we shall refer 
to the national taxation of the United States, and the State 
taxation of Massachusetts ; selecting the latter State only for 
being the most convenient, and as representing that of the 
individual States generally with considerable exactness. 



CHAPTER X. 

NATIONAL TAXATION. — I. CUSTOMS. 

These are taxes upon importations, and collected through the 
custom-houses. Government establishes a tariff; that is, a 
list of duties upon such articles as it deems best : these are 
paid by the. importer before he can gain possession of his 
goods. 

Duties are generally of two kinds, — specific and ad-valo- 
rem. Specific duties are imposed by the pound, yard, gallon, 
&c. Ad-valorem duties, as the term imports, are charged 
upon the value of the goods, as twenty per cent upon an in- 
voice of silks, hardware, sugar, <fec. 

In some of the American tariffs, the specific principle has 
predominated ; in others, the ad-valorem. . There has always 



CHAP. X.] NATIONAL TAXATION. 313 

been a struggle when the tariff was to be changed ; those 
favoring specific duties, for protection, being in favor of spe- 
cific, those of the opposite views contending for ad-valorem 
duties. 

There are difficulties " attending both. If specific duties 
are laid, they operate with great inequality. For example, 
suppose a duty of twenty-five cents per pound upon tea. 
This would be equal to a taxation of one hundred per cent 
on that which cost, originally, twenty-five cents, which the 
poor man must pay; while the rich, who would purchase 
tea that cost seventy-five cents, would pay but thirty-three 
per cent, or one-third as much per cent as the former. 

This was the character, to a large extent, of British taxa- 
tion. The tax on tea was, for a long time, two shillings and 
sixpence per pound (over sixty cents), paid alike by the 
hand-loom weaver and the wealthy nobleman. 

When laid upon cloth, for example, a specific duty fre- 
quently operates in a most oppressive manner. By the 
American tariff of 1828, a duty of so many cents was laid 
upon the square yard of coarse woollens. In applying the 
principle, it was found that negro cloths, as they were 
called, paid more than two hundred and fifty per cent. 
This gave rise to great dissatisfaction, and was the ostensi- 
ble cause of the nullification movement. 

In regard to ad-valorem duties, the practical difficulty has 
been, when the rates were very high, to prevent fraudulent 
invoices. For example, the importer must present his 
original invoice at the custom-house, and make oath to its 
correctness. If dishonest, he may, by connivance with the 
shipper, furnish false papers, showing the cost to be much 
less than it really was. 

Precautionary measures have been adopted. Appraisers 
have been appointed to determine the actual value ; but, 
with all possible care on the part of the government, there 
is danger of deception, and consequent loss to the revenue, 
as well as injustice to the honest importer. 



314 DISTRIBUTION. [BOOK IY. 

Of all modes of raising a revenue, that by customs is 
confessedly the most effective, and the most readily accom- 
plished ; and its great importance, as one of the chief sources 
of national revenue, demands that we give it a careful con- 
sideration. 

The first principle we laid down was " that all should 
contribute, as nearly as possible, in proportion to their re- 
spective abilities." 

As all duties are laid upon articles of general consump- 
tion, it will at once be seen that such taxation cannot have 
an equal bearing, because men are thus taxed in proportion 
to what they consume, not in proportion to their wealth. 
The poor man, with a large family, may pay more than a 
millionnaire. A case is personally known to us of one of the 
latter class, who actually paid less on dutiable articles than 
a printer, with a family, who received but fifteen dollars a 
week. Men are taxed in this way according to .the mouths 
they have to feed, and the bodies they have to clothe. 

In the second place, we inquire, Is " the time and manner 
plain to the person who pays " this indirect tax ? The 
farmer who purchases a carriage, — is he aware that he is 
paying a government tax by so doing ? If so, does he know 
how much he is paying ? Does he understand that all the 
materials, except the wood, have paid duties to government ; 
that the linings, trimmings, and ornaments, the paints and 
varnish, and the tools with which it was made, have all been 
taxed ; and that he is to pay the sum total of the whole ? 
Even if so, can he or any one else easily compute the amount 
of taxation which enters into the carriage ? So of all com- 
modities which have passed through the custom-house : peo- 
ple seldom realize when or how much they are taxed. Then 
the second principle we have laid down is violated. 

But we shall not have a full view of the operation of du- 
ties on foreign merchandise, unless we take into considera- 
tion the fact that they raise the price of the home product, 
if there is one, to an equal degree with the foreign article, 



CHAP. X.] NATIONAL TAXATION. 315 

and, in that way, largely increase the burdens of the people, 
without adding to the public revenue. We will take the 
article of sugar as an illustration. In 1858, there was 
imported sugar to the amount of 823,000,000, and there 
was grown within the country $25,000,000 ; total, $48,- 
000.000. On the imported, a duty was paid of twenty-four 
per cent, equal to $5,520j000. The home product was 
raised in price, of course, twenty- four per cent. To ascer- 
tain the amount thus paid, we take a sum, to which if 
twenty-four per cent he added, the total will be $25,000,000. 
We find that to he 820,101,291. Deduct this last from 
$25,000,000, we have $4,838,709 as the difference, which 
is the sum the people had to pay on the home product. 
Then it stands thus : — 

Duties paid, as above $5,520,000 

Enhanced cost of home sugar 4,838,709 

Total $10,358,709 

To this we must add twenty-five per cent, as the 

profits of the wholesale and retail dealers . . . 2,589,677 

Whole amount paid $12,94i 

Of this government gets 5,520,000 

Loss to consumers ^7,4^ 1,3 186 

Hence it appears, that the government gets in the present 
case but about forty-three per cent of what the people have 
paid. We have estimated that the merchant charges a profit 
upon what he pays as duties, just as much as upon any 
other part of the cost ofjns commodities. We have put the 
profits of the merchants at twenty-five per cent. This, we are 
aware, is a low estimate ; but we are governed by the con- 
sideration, that there would be no importer' h profit on the 
amount produced at home, and also that sugar is a " lead- 
ing article," in the language of trade, upon which less aggre- 
gate profits are made. 

It is apparent, from this illustration, that the real taxation 
of a people will depend very much upon the proportion of 
duties which, designedly or not, are positively protective. 



316 DISTRIBUTION. [BOOK IV. 

If, in the case presented, instead of a duty upon sugar, the 
same impost had been laid upon tea and coffee, which arti- 
cles were free in 1858, and of which together we imported 
in 1858 about the same amount as of sugar, while we pro- 
duced no tea and coffee ourselves, the case would stand as 
follows : — 

Tea and coffee imported $23,000,000 

Duties, twenty-four per cent $5,520,000 

Importers' profits, fifteen per cent 828,000 

$6,348,000 
Jobbers' profits, ten per cent 634,800 

$6,982,800 
Retailers' profits, twenty per cent 1,396,560 

Total, paid by the people $8,379,360 

Of this amount, the government received $5,520,000 
Merchants' profits, paid by the people . 2,859,360 

■ $8,379,360 

The saving to the people in this case would stand thus : — 

Paid by the sugar taxation, as shown before . . . $12,948,386 
Paid by tax on tea and sugar 8,379,360 

Saved to the people, in one year $4,569,026 

Such is the wide difference between duties imposed for 
revenue and those laid for the advantage of home produc- 
tions. Some cases of protection would exceed this ; others 
would come far short : but the principle is shown by this 
illustration. 

CUSTOMS AN EXPENSIVE MODE OF TAXATION. 

But, setting aside all consideration of the additional bur- 
den of taxation occasioned by protection, as just illustrated, 
we find this system is entirely at variance with our fourth 
maxim, which was " tlmt no more sJiould be taken or kept 



CHAP. X.] NATIONAL TAXATION. 317 

out of the pockets of the people than absolutely necessary." 
This will be seen by the following illustration : — 

Supposing the custom-house duties collected to 

amount, as in 1864, in round numbers, to . . $100,000,000 
Expenses of collecting, in all 10,000,000 

Total amount received by the treasury . . $90,000,000 

We estimate the expense of collecting at ten per cent ; but 
including all salaries and charges, and interest upon invest- 
ments made by government, the expense is, doubtless, some- 
what greater ; but, to prevent dispute, we assume that the 
net amount is ninety million dollars. To get this sum, how 
much is paid by the people ? 

We will suppose that the importer's profit is fifteen per 
cent, the jobber's ten, and the retailer's twenty per cent. 
The matter then will stand thus : — 

Original duties paid $100,000,000 

Importers' profits, fifteen per cent 15,000,000 

$115,000,000 
Jobbers' profits, ten per cent 11,500,000 

$126,500,000 
Retailers' profits, twenty per cent 25,300,000 

Total, paid by the people $151,800,000 

Deduct gross amotint paid into the treasury . . . 100,000,000 

Taken out of the pockets of the people, and not paid 

in the public treasury $51,800,000 

or more than fifty per cent extra taxation. 

In regard to the general correctness of these estimates, 
no well-informed person can have any doubt. Hon. George 
Opclyke, a distinguished merchant, late Mayor of New York, 
in a small but excellent work on " Political Economy," pub- 
lished in 1851 (page 200), computes the importers' profits 
at fifteen, the jobbers' at ten, and the retailers' at twenty-five. 
He had the best of means for knowing the amount of the 



818 DISTRIBUTION. [BOOK IV. 

importers' profits. The retailers' were a matter of estimate 
with him. We have supposed that they might be somewhat 
too high, and have therefore placed them at twenty per cent. 
This, considering that it is to be applied to all retail sales, 
not only in cities and towns, but in the most remote dis- 
tricts of the country, is undoubtedly within actual limits. 
As long ago as 1849, we made such investigations as satis- 
fied us of the correctness of the estimates we now give, and 
published tables at that time, illustrating the principle laid 
down. 

In regard to customs duties, then, we cannot but conclude, 
that, while they are a convenient and prolific source of 
revenue, they are very unequal and expensive, and little in 
accordance with the principles of justice and equality. 

BOUNTIES. 

At tliis point, it may be most proper to speak of the effect 
of bounties. If a home product is to be encouraged by gov- 
ernment, it is desirable that it should be done as economi- 
cally as possible ; or in such a manner as to impose the 
least taxation and loss upon the public, while it shall be as 
effective as possible in securing the object. 

Let us take the sugar crop of 1858, just referred to, as an 
illustration. It amounted to $25,000,000. To protect this 
to the amount of twenty-four per cent, the people paid, as 
we have shown, $12,948,386, of which the government 
realized but $5,500,000. Here was a clear loss to the con- 
sumers of $7,428,386. 

Suppose, now, that instead of this protective duty of 
twenty-four per cent, a bounty of equal amount (twenty- 
four per cent) had been paid by the government. The mat- 
ter would then stand thus : twenty-four per cent on $20,- 
161,291 is $4,838,709, which the people would pay to the 
sugar growers, instead of $7,427,386 they were obliged to 
pay through protection ; a saving of $2,588,677, equal to 



CHAP. X.] NATIONAL TAXATION. 319 

thirty-five per cent of the amount paid under the protective 
system. 

This principle applies, in all cases, where an article is 
actually protected, and shows that bounties are by far the 
most economical form of governmental assistance. Boun- 
ties, as a means of protection, have been but little resorted 
to by governments. The reason is obvious. The evident 
injustice of giving to one class of men a premium upon their 
productions, in order that they may be encouraged in a 
branch of industry that cannot live without contributions 
from the public treasury, is so apparent, and evidently unrea- 
sonable and unwise, that the people of no country would 
long tolerate it. It is, therefore, vastly more feasible to 
give protection by duties on the foreign article, although 
much more wasteful and onerous. 



EXCISE. 

Excise are the opposite of custom-house duties, being laid 
wholly upon articles of domestic production, and paid first 
by the producer ; and, after the articles have passed through 
the hands of the merchants, with their profits added, the 
sum total is paid by the consumers. 

This mode of taxation is obnoxious to the same objections 
that may be made to customs. Excise is unequal, because 
it falls on rich and poor alike ; not in proportion to their 
wealth, but what they consume. The merchants' profits are 
not quite so large on these as on custom duties, because 
home products do not ordinarily pass through as many hands 
as foreign merchandise. The expense of collection, though 
only perhaps about one-fourth part as great, is still a heavy 
charge upon the revenue ; but the most popular objection to 
excise is the espionage which it necessarily requires. It is, 
notwithstanding, a very productive source of revenue, and 
must be resorted to by governments heavily indebted. Do- 
mestic manufacturers are not injured by excise duties, unless 



320 DISTRIBUTION. [BOOK IV. 

the} 7 so increase the cost of their commodities as to expose 
them to foreign competition. Profits upon such duties are 
charged upon commodities as a part of the general expense 
of their production. 

TAXES ON DISADVANTAGEOUS CONSUMPTION. 

The principle has everywhere been acted upon by govern- 
ments, that heavy taxes are to be laid on commodities " the 
consumption of which is especially prejudicial to the inter- 
ests of the people." This is in accordance with our fifth 
maxim. 

There are two strong and sensible arguments in favor of 
this kind of taxation. One is, that, if it should cause a fall 
ing-off in the consumption of the articles so taxed, no detri- 
ment would come to individuals or the public ; but, on the 
other hand, their moral and social condition would be pro- 
moted, and the power of production increased. 

The other consideration is, that all those who choose to 
abstain, as they can do without injury, from the specially 
taxed articles, will avoid the payment of the tax altogether : 
such taxes are voluntarily assumed by those who pay them. 

This kind of taxation is found to be far more productive, 
in proportion, than any other ; and consumption is less 
affected by heavy imposts. According to Professor Levi, 
the working classes of Great Britain pay over ten millions 
sterling annually, in taxes upon tobacco and intoxicating 
drinks. The whole amount raised upon these two articles 
in 1858 was as follows : — 

British and foreign spirits and wine £18,500,000 

Tobacco 5,500,000 

£24,000,000 

or about one hundred and twenty millions of dollars, equal 
to four dollars to each inhabitant ; or, allowing five persons 
to a family, twenty dollars to each family. More than a 
third part of the whole British revenue is raised by the taxes 



CHAP. X.] NATIONAL TAXATION. 321 

upon these articles alone ; a remarkable fact, especially 
worthy the attention of the American government at the 
present time. 

STAMPS. 

There is still another mode of supplying the treasury ; 
viz., by the sale of stamps. This is an important branch of 
the public revenue in all highly taxed communities. Stamps 
are required upon all letters, newspapers, and other matter 
carried through the mails ; upon all bills of merchandise 
and bills of lading ; upon legal instruments of every name 
and nature ; upon patent medicines, &c. 

This is cheap and efficient, and as desirable as any form 
of indirect taxation. Of course it bears unequally upon 
different classes, and is more or less vexatious, particu- 
larly when first introduced ; but habit will, after a while, 
reconcile the people to it, and it is as little likely to be 
resisted or evaded as any other form of exaction. It is also 
collected with very little expense, as no functionaries are 
necessary. It should therefore be carried out, as far as 
practicable. The British government raises a large sum in 
this way : eight millions sterling are received for stamps. 
The United-States treasury received, for the year ending 
June 30, 1865, the sum of $11,162,392. 

LICENSES. 

These are granted by both national and State authority, 
for a great variety of purposes. It is a more economical 
and convenient mode of raising a revenue than by excise 
on manufactures, &c, requiring only annual renewal. There 
is also less opportunity for fraud and evasion. It is there- 
fore a very desirable form of taxation ; and the United-States 
government has already availed itself of this mode of raising 
revenue, to the extent of $12,613,478 for the financial year 
1865 ; and this sum may doubtless be greatly increased hi 
the future. 

21 



822 DISTRIBUTION. [BOOK IV. 



CHAPTER XI. 

NATIONAL TAXATION (continued). INCOME TAX. 

It is unnecessary to say that this tax is in perfect accord- 
ance with the first maxim laid down by Adam Smith, that 

every man should be taxed according to the revenue he 
derives under the state," and also consistent with every 
other principle we have stated. It is " clear and plain " to 
the contributor, and every other person. The income-tax 
payer knows when and how much he pays ; and it can be 
collected as conveniently and economically as any other. 

This kind of tax was established in England in 1798, 
during the wars with Napoleon, but was abolished soon 
after the close of that struggle. About 1842, however, the 
government, finding its revenues fall short of the expendi- 
tures, restored the tax ; and it has been continued to the 
present time. 

This tax was unknown, we believe, in the United States, 
until the civil war, when it was laid by Congress, and has 
been continued thus far. Total amount collected for the 
year ending June 30, 1865, was $20,740,451.83 ; while the 
whole internal revenue, for the same time, was $211,129,- 
529.17 ; so that the income tax produced nearly ten per 
cent of the amount. 
/ Of all modes of taxation, this is the most just and equita- 
ble. Every man can afford to pay according to his income, 
and ought to do so. There is no other perfect standard of 
taxation ; none other which does not inflict more or less 
\ hardship and injustice. 

The tax comes upon the annual private revenue of each 
year, out of which the government should receive its share 
for the annual revenue of the state. If the private revenue 
is increased, so should be the contribution to the public rev- 



CHAP. XI.] NATIONAL TAXATION. 323 

eirae : if the former is diminished, the latter should be also. 
This is fair and just. "Were it to supersede all other forms 
of taxation, perfect equality would be established ; property 
and labor would bear each its just share of the public bur- 
dens. To do this, it would be necessary to ascertain the 
income of every man ; of every laborer, whether his wages 
amounted to one hundred or one thousand dollars a year ; 
of every professional man ; of every operative, male or female ; 
every capitalist, banker, merchant, and mechanic. Upon the 
gross income, thus ascertained, the general tax should be 
levied, pro rata. In this way, it is clear, equality, as far as 
that is practicable, would be established ; and each member 
of the community would be made to bear his just proportion, 
and, of course, would be obliged to save, in his expenditures, 
to that amount. 

The objection to this form of taxation is the difficulty of 
ascertaining what a person's income actually is. In the 
first place, it is said that many do not know their affairs 
so as to be able to state their true income. There is doubt- 
less much of truth in this ; but the very fact that such a tax 
is certain to be enforced every year will, in a short time, 
remove this difficulty to a considerable extent, because men 
will be compelled so to keep their accounts as to know what 
they gain or lose. The operation of the law in this respect, 
therefore, is favorable to private interest ; since the more 
intelligent every man is in regard to his affairs, the better 
for him. Such, we believe, has been the operation of the 
income tax in England. 

Secondly, It is said that some men will be dishonest in 
their disclosures and statements, and therefore a correct 
result cannot be reached. 

That many men are dishonest there can be no doubt ; but, 
when the law taxing incomes is regularly enforced from 
year to year, the difficulty of concealment, on the part of the 
tax-payer, is constantly increasing. His neighbors and com- 
petitors in business have an eye upon him, if they believe 



324 DISTRIBUTION. [BOOK IV. 

he is making false statements ; and he cannot long escape 
detection. Besides, as a man may be put under oath (and, 
by the way, ought always to be), the crime of perjury must 
be committed with every misrepresentation of his affairs. 
The immense difference between the reported incomes of 
the United States in 1864 and those of 1863, even after 
allowing for the general rise of prices, serves to give an 
idea of the advance that will naturally be made in the appli- 
cation of the income tax. 

The third objection made is, that men do not always like 
to have their incomes known. But why should they not ? 
We have already said, that, in the matter of taxation, all 
are copartners, having a pro-rata interest. What one does 
not pay, others must. All, therefore, may rightfully demand 
such information as shall furnish the means of assessing a 
correct tax. 

Besides this, an income tax well enforced will be the 
means of diffusing a large amount of information most im- 
portant in regard to the credits which business men are 
required to give. The position and ability of every man 
will be better understood. This is not an unimportant con- 
sideration. It is difficult to see any reason for objecting to 
a disclosure of income for taxation, which does not equally 
apply to the disclosure of property for the same purpose. 

Estimated Income. — But it may be said that the income- 
tax principle would not work well in some communities, 
because a considerable share of its wealth produces no in- 
come, and therefore would go untaxed ; that this is espe- 
cially so in the new States, where vast quantities of land are 
held which yield no rent or income whatever. 

But this is a mistaken view of the matter. If these lands 
are appreciating from year to year, — and, as a general fact, 
owing to the increase of population, they are, — the income 
from them is as real as any other ; but it is a deferred in- 
come, which is sure to come in the end. All such property, 
whether in city lots or farms, should, if an income tax only 



CHAP. XI.] NATIONAL TAXATION. 325 

were levied, be estimated yearly, according to its increasing 
value, and be assessed upon that principle. 

We do not advocate the adoption of the income tax as a 
substitute for all other modes of taxation : our purpose is 
to shew, that, so far as practicable, it is the most just and 
economical mode of raising a revenue. 

TAXATION UPON EXPORTS. 

Whenever a people produce more of any commodity than 
is required for their own consumption, the surplus must 
find a foreign market, or the production will not be ex- 
tended beyond the home demand. Any thing, therefore, 
which has a tendency to prevent the sale of domestic pro- 
ducts in a foreign market must discourage home industry. 
Such being the case, what must be, in general, the effect of 
duties laid upon exports ? Evidently to reduce the amount 
exported, and benefit the foreign producer of the articles 
thus taxed. Take the article wheat as an illustration. It 
can be produced in almost every country, and is an article 
of export from many. Such are the facilities afforded by 
commerce, that the wheat of one country must enter into 
competition with the wheat of every other country ; and it 
may therefore be taken as a fair exponent of commodities 
in general. 

If the price of wheat in New York is one dollar and fifty 
cents under a currency at par with specie, it is because it 
can be shipped to Liverpool or some other foreign port, and, 
after paying freight and charges, make a remittance equal 
to one dollar and fifty cents in specie. Under these circum- 
stances, we will suppose an export duty of twenty-five cents 
per bushel is laid on wheat. 

Would the New-York dealer now pay one dollar and fifty 
cents per bushel for the wheat ? Certainly not, since he 
could not export it without paying, in addition, a duty of 
twenty-five cents per bushel ; and, unless the article should 



826 DISTRIBUTION. [BOOK IV. 

rise abroad, lie would lose to the amount of the duty paid. 
Of course, he now offers but one dollar and twenty-five 
cents instead of one dollar and fifty cents, and the difference 
is the loss of the producers, who, in consequence of the 
export duty, are at a. disadvantage of twenty-five cents per 
bushel, as compared with the wheat-growers of every other 
country. They have nothing left but to accept a reduction 
of twenty-five cents per bushel, or limit their production in 
the future to the amount required for home consumption. 
When they have done this, the price of wheat will corre- 
spond with the prices of all the other agricultural products 
of the country, whatever that price may be : for all such 
products will be affected by an export duty laid on the 
great staple of agriculture ; every kind of grain and meat, 
as truly as the wheat on which the duty was laid, though 
not, perhaps, in the same degree. But, since the foreign 
market has been to a large extent dependent for its full 
supply upon American wheat, will not the price advance to 
such a point as to bring up the price of the American arti- 
cle ? If the American wheat must be had, such a price must 
be offered as will bring it. But, as soon as wheat begins to 
rise abroad from this cause, a larger supply will be attracted 
from other wheat -growing countries, in which production 
will be stimulated to the extent it is depressed in the United 
States. The price having risen, a limited amount will go 
from our ports ; but wheat will not rise permanently to such 
a point abroad as to make it twenty-five cents higher in the 
United States. The American producer must, in any event, 
take a part of the loss, and the foreign consumer the bal- 
ance ; while foreign producers, having an unnaturally high 
price, will extend their cultivation as far as possible. 

The unquestionable effect of export duties is to lessen 
production at home, and give encouragement to foreign 
labor. This is a general principle, applicable to every com- 
modity of home growth or production, except such as one 
nation may have a virtual monopoly of; that is, may be able 



CHAP. XI.] NATIONAL TAXATION. 327 

to produce in so much greater perfection, 01 at so much 
lower rate of cost, or both, that no other nation can com- 
pete with it. In that case, the exporting nation might 
impose a duty, which, while it should create a revenue, 
would, not lessen production materially, if at all. 

TAXATION OP COTTON. 

Many persons are of the opinion, that an export duty, or 
its equivalent in the form of excise, might be laid upon 
cotton without any detriment to the general interest of the 
trade of the country, while it would produce a considerable 
revenue at the expense of the foreign consumers. 

It is, then, an important economical and financial ques- 
tion to the people of the United States, whether the peculiar 
advantages they have over all other cotton -growing coun- 
tries give them such a monopoly as to en'able them to lay 
an export duty upon it, without any immediate or remote 
injury to themselves. 

There are several considerations which go to prove that 
such is the case, some of which we shall notice. 

I. UNIVEKSAL DEMAND FOR COTTON.* 

" There are only four articles of any considerable importance 
used in the manufacture of clothing. These are wool, silk, flax, 
and cotton ; two animal and two vegetable productions. The first 
of these, though quite indispensable in the high latitudes, is only 
partially available in the lower, and can be used but little in the 
tropics. Silk, while an article from which beautiful and elegant 
fabrics can be made, is not adapted to general use, and being, like 
wool, an animal product, cannot be furnished in sufficient quantity, 
or at so low a rate as to be made available for the greater part of 
mankind. Flax being a vegetable production, and its culture 
adapted to a great variety of soils and climates, might doubtless 
be produced in any desired quantity ; but, like silk, it would but 
partially meet the wants of that large portion of the population of the 
globe where snows and frost prevail a considerable part of the year 

* Extract from the author's speech in Congress, Feb. 18, 1863. 



328 DISTRIBUTION. [BOOK IV. 

" After looking at these several commodities, then, we find that 
an article is needed which shall, as nearly as possible, combine the 
peculiar properties and advantages of all of them ; one that can 
be cheaply and bountifully produced, and that may most readily be 
converted into clothing, having, at pleasure, the warmth of wool, or 
the elegance or lightness of silk or linen. Cotton we find to be 
just that article, combining in a most wonderful degree the advan- 
tages of wool, silk, and flax. The earth has one thousand million 
inhabitants, and each and every one of these need cotton. There 
is no exception. Not, indeed, that human beings cannot possibly 
exist without it, but their welfare and happiness are promoted by 
its use." 

II. RESTRICTED CULTURE. 

" While cotton is one of the greatest necessities of mankind, we 
find its successful culture confined to a very limited portion of the 
earth's surface. I say successful culture ; for although it may be 
raised in India, Egypt, and other countries in similar latitudes, yet 
the quality is so inferior, the quantity to the acre so limited, and the 
labor so ineffective, that the countries in question do little more 
than supply their own wants. 

" It is reserved to the States of the American Union lying in 
immediate jjroxiniity to the Gulf of Mexico to furnish the world 
with the article in such quantities, and of such quality, as to meet 
the general demand. The culture of the article began prior to the 
Revolution ; but it did not become an article of foreign export till 
1784, when eight bales were shipped to Liverpool. These were 
seized by the custom-house officers, on the ground that they could 
not be of American production." 

III. INCREASE OF PRODUCTION AND ADVANCE OP PRICE. 

" No very great extension of the cultivation of cotton was real- 
ized until 1792, when Eli Whitney invented the cotton-gin ; but, 
from that moment, it increased with wonderful rapidity. The value 
of the export of cotton was, — 

In 1821 $20,900,000 

In 1830 29,000,000 

In 1840 63,000,000 

In 1850 71,000,000 

Inl8G0 191,000,000 






CHAP. XI.J NATIONAL TAXATION. 329 

" This amount, it will be observed, is over and above the amount 
consumed in the United States. The whole product in 1850 was 
2,096,706 bales ; in 1860, 4,669,770 bales. Mark especially the 
great increase from. 1850 to 1860, of one hundred and thirty per 
cent! 

" But the more striking and noticeable fact is, that, while the 
production had increased at this enormous rate, the prices also had 
advanced twenty-five per cent. According to the financial report 
of 1861, the average price of cotton from 1840 to 1850 was but 
8.2 cents per pound; while, from 1850 to 1860, the average price 
was 10.5 cents per pound, — a difference, it will be seen, of a little 
over twenty-five per cent. 

" The difference between the value of the entire crop of cotton, 
including all consumed at home and exported, is still more remark- 
able. In 1850 it amounted to but $117,619,947 ; while, in 1860, it 
was $308,865,280, — showing an increase of value of nearly two 
hundred per cent, owing, of course, to the increase of quantity 
and the advance of price. 

" Here, then, is the singular fact, unparalleled, perhaps, in the 
commercial history of the world, that, while the production was 
increasing at a rate so prodigious, the price was constantly advan- 
cing. This is contrary to all the ordinary laws of trade. As 
production increases, prices fall ; but in this case, instead of a 
decline, we find a great advance of price." 

Do not these facts and considerations show conclusively, 
that the United States have such advantages over all others 
in raising cotton that they may to a certain extent dictate 
the terms of sale ? In just so far as this is true, might an 
export duty be laid which would fall entirely on the foreign 
consumer, without any injury to the American cotton-grower. 

Suppose an export duty of five cents per pound. The 
superiority and desirableness of the American article are 
so great that it cannot be supposed the demand would be 
lessened in any appreciable degree. From what we have 
seen during the Rebellion, need we fear that the de- 
mand would be perceptibly curtailed ? If not, then no 
damage would come to the grower ; while a large revenue 



380 DISTRIBUTION. [BOOK IT. 

would be secured by the government at the expense of the 
foreign consumer. 

The whole cotton crop of 1860 was 4,669,770 bales, 
which, at 500 pounds to a bale, give a total of 2,334,500,000 
pounds, which at five cents duty, or excise, would yield 
$116,725,000. To determine what rate of duty or excise 
should be laid must be a matter of experiment. If the 
rate were found too high, — that is, so high as to reduce 
consumption, — it should be lowered ; or ? if too low, it 
could be raised. 

The immense extent to which the cultivation of cotton 
in the United States may and doubtless will be carried is 
shown by Edward Atkinson, Esq., of Boston, a most reli- 
able statistician, in his map of the cotton kingdom ; from 
which it appears that while the whole area within the United 
States adapted to profitable cotton culture is 666,196 square 
miles, only 10,888 are in actual use for that purpose, or 
but 1.634 per cent ; that is, less than two per cent. He 
remarks, that, " with free labor, the capacity of the South to 
raise cotton cannot be less than one hundred million bales " 
against about four and a half millions in 1860 ; so that less 
than one-twentieth of the capacity of the country has yet 
been developed. 

The principal point to be considered in regard to cotton, 
or any other domestic product, is whether an export or 
excise duty will essentially restrict the consumption of the 
article, either at home or abroad.* 

* Should the cost of producing cotton be greatly increased by the em- 
ployment of free, instead of slave labor, the impolicy of an export duty will, on 
the principle already laid down, be quite obvious. 



CHAP. XII.] STATE TAXATION. 331 



CHAPTER XII. 

STATE TAXATION. 

A general valuation of all real and personal property is 
made by the authority of the State, according to which all 
State taxes are apportioned to each county, city, or town. 
The municipal authorities then assess the amount allotted 
them upon the property and polls of their constituents, 
together with the amount required for city or town expen- 
ditures. 

Thus all taxes, whether for State, city, town, or school- 
district, are direct, and laid wholly on property, except the 
small amount of poll-taxes. There may be some slight 
variation in different States from the course we have 
stated ; but it is quite unessential, and does not materially 
change the grand result. 

The law makes it the duty of each person to furnish the 
assessors annually a true invoice of his estate, and to its 
correctness he may be required to make oath ; and, if any 
person neglects or refuses to make such inventory, the 
assessors make one for him, according to their own judg- 
ment. 

The rate of tax varies from year to year, and is widely 
different in different towns and cities. Before the Rebellion, 
the rate in Massachusetts was seldom less than sixty cents, 
or more than one hundred on a hundred dollars ; but such 
have been the expenditures caused by the war, that few 
now have a rate less than one hundred, and some have been 
as high as three hundred and fifty, cents on the hundred 
dollars. 

This tax, if the valuation be fairly made, approximates to 
justice and equality. It is assumed that every man's ability 
to pay is in proportion to the property he holds ; that his 
revenue corresponds with his wealth. This may, or may 



332 DISTRIBUTION. [BOOK IY. 

not, be true ; and, as we shall have occasion to show, there 
are circumstances which disturb, to some extent, the equal 
operation of this tax. 

And here we may notice some of the objections to this 
compound system of poll and property taxation. Poll-tax 
payers vote directly upon the public appropriations ; yet they 
have no personal interest whatever in the amount of expen- 
ditures. No matter whether a proposal to expend money is 
wise and necessary, or frivolous and wasteful, the poll-tax 
payer can vote for it with entire impunity. It is nothing to 
him whether the sum be one thousand or ten thousand dol- 
lars. Indeed, the influence of poll-tax payers is often in 
favor of the most lavish expenditures. A new road, for 
example, is proposed in town meeting. It may be quite 
unnecessary, and ought not to be made ; but the poll-tax 
payers, a large share of whom are laborers, will be immedi- 
ately benefited by the demand that will be made for labor, 
and will be very likely to go in favor of it. It needs no 
argument to show the bad effects of such a state of things, 
regarded only in an economical point of view. If men may 
vote away money in the payment of which they have no in- 
terest, is it likely to be done to the advantage of the public 
interests ? Is it not certain that there will be unwise and 
reckless expenditures ? 

This false position of the poll-tax payer has attracted the 
attention of those who are narrowly watching the effects of 
equality of suffrage without equality of taxation. The result 
of popular votes during the civil war, by which immense, 
and often quite unnecessary, burdens were imposed upon 
towns, has caused no small anxiety amongst those who have 
noticed the natural consequences of giving to a class nu- 
merous and powerful, at the ballot-box, the power to impose 
taxes upon the public, from which they are themselves 
exempt. 

On the other hand, the poll-tax payer, while he contrib- 
utes heavily towards the national expenditures through cus- 



CHAP. XII.] STATE TAXATION. 333 

toms and excise, lias no direct vote in regard to them. He 
can vote where his own interest would lead him to vote 
wrong, but has no power to vote directly where his interest 
would lead him to vote right. 

The income-tax. principle, if universally adopted, while it 
would doubtless relieve poll-tax payers of their present tax- 
ation, would, at the same time, bring their interests into 
harmony with those of property-tax payers, and thus pro- 
mote the general welfare of the public. 

The poll-tax is one of the oldest and most general of all 
taxes imposed by State authority. In Massachusetts, " every 
male inhabitant over twenty years of age is included, except 
persons who, by reason of infirmity and poverty, are, in the 
judgment of the assessors, unable to contribute fully to the 
public charges." 

It hardly need be said, that this form of taxation is not in 
accordance with the maxims laid down by Adam Smith ; 
those who pay it not having equal ability, or enjoying " an 
equal revenue." It is a tax founded on no sound principle 
whatever ; and, if it were the only tax imposed, would be as 
unjust as a tax could well be. It forms, however, only a 
part of a system which must be looked at in all its bear- 
ings, in order to form a correct judgment of the operation 
of the particular tax, which by law is a limited one, deter- 
mined by State legislation. In Massachusetts, the maximum 
poll-tax is now fixed at " not over two dollars," but may be, 
as it has been, changed from time to time. It has never, 
we believe, been higher than at present. 

The property and poll tax being the two modes * by which 
all revenues are raised by the individual States, we will look 

* States have, in some cases, derived a revenue from a tax upon banks. 
In Massachusetts, it was for many years the greatest source of income ; so 
great, indeed, as to render any direct State tax unnecessary. Licenses have 
also been granted, by State authority, in some instances ; but the amount 
received in any other mode, except by direct taxation, is too small to affect 
essentially the public burdens. The establishment of the national-bank sys- 
tem has cut off bank taxation from the States as a source of revenue. 



334 DISTRIBUTION. [BOOK IV. 

for a moment at their operation as between the different 
classes upon which they are imposed. To do this, we refer 
to a valuation and tax list before us, and find the following 
examples. 

B. II. — Buildings and 45 acres of land . . $1,000 

Stock ' &c ^ $1,345. Taxes, $15.47 

Toll, 2.00 

$17.47 
T. G. — Buildings and 43 acres of land . . $1,500 

Stock ^ $1,738. Taxes, $19.99 

Poll, 2.00 

$21.99 
L. G. S. — Buildings and 56 acres of land . $1,200 

Stock 30 ° $1,500. Taxes, $17.25 

Poll, 2.00 

$19.25 
Average property, $1,528. Average tax, $19.57. 

"We here find that those small farmers pay $19.57 each, 
equal to nine and a half times as much as the poll-tax con- 
tributors. Does any one suppose that the incomes of the 
former arc nine and a half times as great as the latter ? Let 
us test the question. 

Suppose each of these farmers derives a net income of ten 
per cent on his capital, over all outlays and repairs ; and 
that his labor is worth to him five hundred dollars per an- 
num. This is a large allowance : — 

Land and stock, as above, at ten per cent $152.80 

His own labor equal to 500.00 

Total income $652.80 

Now we will assume that the exclusive poll-tax payers 
have an average income of four hundred dollars. We in- 
clude in this list not only all common laborers, but all 
skilled workmen, mechanics, and others, whose labor is 
worth, under a sound currency, $1.50 to $2 per day ; and 
also all clerks, and other employees, whose salaries are six 
hundred dollars and under. Then if all these classes aver- 



CHAP. XII.] STATE TAXATION. 335 

age four hundred dollars per year, as no one will dispute, 
it will appear that the income of the poll-tax payers is 
charged $2, while these small property-holders are charged 
$19.57. 

Here is a great disparity, but there is no exaggeration in 
the statement. From the same valuation and tax list, we 
take three farmers, having about one hundred and twenty- 
five acres each, with buildings and stock, and find their 
farms and stock average $3,757 ; and their average taxes, 
poll inclusive, amount to $47.03. 

On the same calculation as before, — 

Farm and stock, $3,757, at ten per cent $375.00 

Value of farmer's own labor 625.00 

Farmer's total income $1,000.00 

Then, if the poll tax-payer is charged $2, with an income 
of $400, what ought the farmer to pay with an income of 
$1,000 ? Answer, $5. 

Instead, then, of $5, the true proportionate amount, the 
farmers, as before shown, pay $47.03, or more than nine 
times as much.* There is no escape from these conclu- 
sions ; and we appeal with confidence to those best qualified 
to judge, whether the estimate placed upon the incomes of 
farmers of the description we refer to is not essentially 
correct. In whatever way we look at the matter, we cannot 
fail to see great inequality. But the poll-tax is not only 
unequal as between those upon whom it is assessed, and 
whose incomes range from $150 to $600, and also unequal 
as between this class generally, and all property holders, 
but it is also very disproportionate to the advantages it 
confers. Let us see what these .are. 

1. Entire protection to persons and property. 

2. Right of suffrage, and eligibility to office. 

3. The most ample means of education in common and 

* And the hardship, in this case, is often increased by the fact that the 
farmer is indebted for a large part of his capital, and paying interest upon it. 



336 DISTRIBUTION. [BOOK IV. 

high schools, without charge, and a chance for a scholarship, 
provided by the State, in one of the colleges. 

4. Complete maintenance, and the highest scientific treat- 
ment, for life, if need be, if himself or any member of his 
family should be deaf and dumb, or afflicted with blind- 
ness, idiocy, insanity, or, last of all, helpless poverty. What 
individual or corporation could be found to insure a laborer's 
family against all accidents and deprivations, physical and 
mental, from every source, through life, for one-half of one 
per cent on the income of the family head, or for twenty 
times that sum ? 

For all this, and much more that might be added, the 
recipient of a revenue from any occupation, trade, or profes- 
sion, of any sum not exceeding six hundred dollars, if he 
has no visible property, pays an annual tax of not over two 
dollars, or four cents per week ! As we have already said, 
considered in itself, disconnected from other forms of taxa- 
tion, this is very unequal, and consequently unjust, as be- 
tween the different classes. The obvious result is to trans- 
fer an undue share of the burdens of State, county, anal town 
expenditure from the mechanical and laboring classes to 
the agricultural ; thus promoting the interest of the former 
at the expense of the latter. 

But all this applies, it must be remembered, to taxes 
imposed under State or municipal authority only, from all 
which the poll-tax payer escapes entirely by paying two dol- 
lars. 

Effect of the Two Systems. — We are now able to compare 
the results of the two different systems; viz., national and 
State taxation. In the national, we find that the greater 
part of all taxes are indirect: the State and municipal 
taxes are, with slight exceptions, direct. The former fall 
almost wholly on consumption ; the latter, upon property. 
The first is unjust to labor, or the non-property-holding 
classes : the other is unjust to capital, or those who hold 
taxable estate. One operates as an offset to the other. 



CHAP. XII.] STATE TAXATION. 337 

Neither is just in itself, nor does the action of the two sys- 
tems conjointly establish perfect justice ; but it approximates 
as nearly to it, perhaps, as any other system of taxation 
ever adopted, or likely at present to be adopted. 

Before leaving the subject of State taxation, we will 
briefly notice the inquiry often made, why the United- 
States government does not assign to each State its share 
of the public burdens according to its general valuation, 
and allow the State authorities to collect the amount at the 
same time, and in the same way, as all the direct taxes of 
the State are levied and collected. In reply to this, it may 
be said, that, if the national government could rely im- 
plicitly upon the fidelity and promptness of every State, it 
would be by far the most economical and efficient mode 
of collecting the revenue. The expense of collection would 
be almost nominal, probably not exceeding one-tenth of the 
sum now required ; and an army of office-holders might be 
left free to engage in productive employments. But such 
has been the state of society in some of the States in times 
past, that reliance could not be placed upon their promptly 
assessing and collecting a national tax ; nor can it be ex- 
pected that the time will soon come when such a measure 
would be practicable. 

TAXATION OF CREDITS. 

It has sometimes been maintained that credits ought not 
to be taxed, but all assessments be made upon, values, or 
property, personal and real. Taxes, it has been argued, 
ought not to be laid upon persons, but upon that out of 
which they can alone be paid ; viz., property. 

But credits are taxed as well as values. A holds a farm 
worth 810,000, mortgaged to B for $5,000. A pays taxes 
upon the whole valuation, and B upon $5,000, as money at 
interest. A, it is said, is doubly taxed. This is a practical 
question, that has puzzled legislators in every age and coun- 
try. Let us therefore carefully examine it. 

22 



388 DISTRIBUTION. [BOOK IV. 

Suppose A and B aforesaid form an entire community, 
and that the whole tax of $150 is imposed on property. 
The whole valuation will then be $10,000 (A's farm), and 
the rate one and a half per cent, which A pays, and B goes 
untaxed. We will now change the principle, and have both 
property and credits taxed. The valuation will then be, 
A's farm, $10,000, and B's money at interest, $5,000; 
total, $15,000 ; and, with the same amount to be assessed 
($150), the rate will be one per cent, of which A pays 
one hundred, and B fifty, dollars. So, then, we discover 
that A is not doubly taxed, as assumed, but at the worst 
pays only twenty-five dollars, or one-third, more than his 
share. Such must, in principle, be the result of this kind 
of taxation, taking a whole community together. All the 
amount taxed upon credit is so much relief to taxation 
upon property. This seems to be clear ; and the justice of 
the thing is established by the fact that A bought his farm 
knowing that it would be subject to a full taxation, and 
bought it cheaper, as we have shown in another place, on 
that account. B, on the other hand, accepted his mortgage 
on the same ground, knowing it would be subject to tax on 
the common valuation. Is either party, then, wronged? 

But perhaps another reason may be given why A should 
pay taxes upon the whole value of his farm ; viz., that, hav- 
ing the usufruct of the whole, he is entitled to all the profits 
on the farm. " But he don't own the whole of the farm." 
True, that is his misfortune : if he did, he would obtain a 
larger amount of net profits ; but his obligation to pay tax 
on the whole is not impaired, because he has the use of 
a part of B's capital. As the owner of the farm, A has a 
chance for all the profits that can be made from the whole ; 
while, by the taxation of B on the mortgage, the former 
saves a part of what he would otherwise pay in taxes. One 
pays taxes for the profits of business ; the other, for the 
income on his capital. 

In this case we find another very clear illustration of the 



CHAP. XII.] STATE TAXATION. 339 

correctness of the income-tax policy. If there were no other 
tax than upon income, the matter would stand thus : — 



A's income from his farm, say 

He deducts the interest he pays B 300 

A pays tax on his net income of $600 

B's income is taxed upon 300 

Total income to be taxed 900 

Amount to be raised, one hundred and fifty dollars : of this, 
A will pay one hundred dollars, and B fifty ; and there 
would be no question as to the justice of the system by 
which both were thus taxed. If A's income should be 
more or less than nine hundred dollars, he would pay more 
or less, and B must pay less or more accordingly. 

In the absence of the income-tax principle, what can be 
more equitable and just than the practice of taxing both 
mortgagor and mortgagee ? If the former were allowed to 
deduct from his inventory the amount he owed the latter, 
it would often happen, that, the mortgagee not living in the 
same town or State, so much propert} 7 ' would escape taxa- 
tion altogether. This in some communities, especially our 
Western States, would be a great evil. That much hard- 
ship may often result from taxing credits as well as prop- 
erty is undoubtedly true ; but that only affords additional 
evidence that the income-tax principle is the only correct 
one. Next to this would be the levying of all taxes upon 
property exclusively ; and if adopted at the very commence- 
ment of a social organization, as at the landing at Plymouth 
in 1620, it would secure a just taxation, because all property 
would be created, held, and transferred under that well- 
known condition. 

TAXATION OF GOVEENMENT BONDS. 

The question of taxing credits assumes great practical 
importance, when regarded in relation to the national debt 



310 • DISTRIBUTION. [BOOK IV, 

of the United States. We will assume that debt to be three 
billion dollars (13,000,000,000). This forms a lien or mort- 
gage upon the national wealth, which the Secretary of the 
Treasury, in his report, December, 1865, estimates at a little 
over fourteen billions : for convenience, we will call it fifteen 
billions. In that case, the national debt will be equal to 
one -fifth of the national wealth. On this debt of three 
billions, the interest, at six per cent, will be one hundred 
and eighty millions. If we suppose that all other demands 
on the Treasury amount to one hundred and twenty mil- 
lions annually, we have an aggregate of three hundred 
millions as the amount of taxation. The national debt, if 
included in the national valuation, would increase it twenty 
per cent, or from fifteen to eighteen billions. This would 
reduce the rate of taxation by one-sixth, or 16| per cent ; 
that is, if only property was taxed, the rate would be two per 
cent ; if property and national stocks, the rate would be 
1.66. 

Should the national debt be exempted from taxation, there 
will be one hundred and eighty millions of income that will 
go untaxed by State and municipal authority ; and that is a 
large share of the net income of the entire people, or what 
they can save after supplying their necessary consumption. 
The subject, therefore, is one of surpassing interest to the 
country. Quite fortunately, however, the matter is wholly 
within the control of Congress, which can, as fast as the 
present bonds and other securities become due (and they 
may all be redeemed * within seven, and most of them with- 
in three years from 1865), convert them into bonds not 
exempted from general taxation. 

Public faith should be kept inviolate, but public justice 
should also be secured as soon as possible. Better far to 
pay a high rate of interest, if need be, than have so large a 
share of individual income, and, consequently, of ability to 
pay taxes, escape its proper responsibilities. This is desira- 

* Except the twenty -year bonds, which mature in 1881. 



CHAP. XII.] STATE TAXATION. 341 

ble, not only as a matter of policy in removing a prominent 
cause of popular dissatisfaction which may sooner or later 
endanger the security of the debt itself, but as an economi- 
cal advantage to the country. 

The effect of exempting the public debt from taxation may 
be illustrated as follows : A has an income of one thousand 
five hundred dollars, derived from a salary ; B' has an equal 
income, derived from coupons on the national stocks. A 
must pay taxes, and, of course, must economize accordingly : 
B pays no taxes, and consequently has no occasion to save 
on that score. Now, as all national capital comes from the 
savings of the people, it can be seen at once, that, if one- 
sixth part* (in amount) of the tax-payers are exempted 
from taxation, they are, to an equal extent, exempted from 
all necessity of saving. 

We are aware that the holders of public stocks pay indi- 
rect taxes (customs, excise, &c), but so also does the man 
who has no interest in the funds. What we intend to say 
is, that so far as a man's wealth is invested in untaxed secu- 
rities, in so far he has no motive to save arising from a taxa- 
tion to which all others are liable. Looking, then, at its 
economical bearings merely, ought not all public securities 
to be included in the general schedule of taxation, both by 
the national government, and the States, cities, and towns in 
which the holders reside ? 



CONSOLIDATION OP THE NATIONAL DEBT. 

While this work is passing through the press, a proposition 
is made in Congress to consolidate the debt of the United 
States into a "uniform five per cent stock, having thirty years 
to run, payable, interest and principal, in gold. 

It is, doubtless, desirable to effect such a consolidation, 

* It is, doubtless, far more than one-sixth part of the net national income, 
probably at least one-fourth, or 25 per cent. A large share of the estimated 
fifteen billions of aggregate wealth is of a character to escape taxation. 



342 DISTRIBUTION. [BOOK IV. 

provided it can be done in an economical and proper man 
ner ; but the proposal to exempt the consols from taxation 
is quite another matter. We have already spoken of the 
invidious, as well as unjust, operation of a system which 
exempts from taxation one-sixth part of the national re- 
sources ; but, since the proposal has been made, it becomes 
desirable, we think, to give the subject some further consid- 
eration. 

We shall not dwell upon the political bearings of a meas- 
ure sure to create abiding dissatisfaction ; sure to be a most 
dangerous weapon in the hands of political aspirants, and 
certain to endanger eventually the security of the debt it- 
self. We shall speak only of its economic bearings. 

1st, The exemption of three billion dollars from taxa- 
tion for the usual State, county, town, school-district, and 
parish purposes, will create a very considerable and influen- 
tial class of persons, who, while they will have the legal right 
to vote appropriations for all public objects, will be under no 
obligation to pay a farthing of the amount raised ; who, 
while interested in having large public improvements made, 
will have no responsibility for the expense of them : a class 
to whom it will be a matter of entire indifference how large 
the assessments may be, or how unwisely or wastefully the 
public finances may be conducted. Can any reasonable man 
think it expedient and proper to create such a class ? Does 
any one doubt that its influence would be unfavorable to the 
public welfare? We already exempt labor, to a great ex- 
tent, from the burdens of State and municipal taxation, by 
limiting the poll-tax to a fixed and very trifling amount, so 
that the poll-tax payer can vote any sum he pleases with 
entire impunity. By exempting three billions of the national 
credit from taxation, it is now proposed to place capitalists, 
so far as they are owners of the public stocks, in the same 
favored position. The interest of these two parties will then 
be identical in regard to all public expenditures paid for by 
a direct tax on property, as State and municipal charges 



CHAP. XII.] NATIONAL TAXATION. 343 

generally are. Both can vote away money, and leave the 
unfortunate property-holders to settle the bills. By the ex- 
emption proposed, government creates a great antagonism 
in the body politic. It grants a special and most important 
favor to one class, at the expense of others. It may be 
urged, that the favor has been paid for by the creditors of 
the government, in that they took the stock at a less rate 
of interest than they would have done had it been subject 
to taxation. But can government, with any propriety, make 
any such condition ? Can it rightfully grant, for any con- 
sideration whatever, a dispensation to one class of citizens 
from all pecuniary obligation to State, city, and town au- 
thority throughout the nation ? Surely not, consistently 
with justice and equality, because in one community the 
favor granted may be worth one per cent, in another two. 
In one locality, it may advance the general valuation one- 
half; in another, only one-tenth : in one municipality, it may 
increase the general rate of taxation five mills on the dollar ; 
in another, twenty. 

Can that be just and equal ? And yet all taxation, under 
a free government, must be seen to be clearly impartial and 
just, or the people will not submit to it. 

2d, Such an exemption will create a powerful influence 
against the payment of any thing but the interest of the debt. 
This can be readily seen, and hence we perceive another un- 
favorable effect from the proposed policy. The debt should 
be paid off as soon as practicable. It should not all be 
placed out of reach for thirty years, and exempted for all 
that time from contributing to its own discharge, unless we 
are prepared to resign ourselves to never-ending taxation 
for the payment of interest. 

In a sectional point of vieiv, the exemption principle will 
be very unequal in its bearings. In the new States, where 
capital is comparatively scarce, and local taxation necessarily 
heavy, its operation will be especially oppressive and odious. 
Every available dollar will be put into government bonds. 



344 DISTRIBUTION. [BOOK IV. 

unless it will command an excessive rate of interest on indi- 
vidual security. Will not this enhance the rate of interest, 
where capital is most scarce ? If so, will it not be most 
burdensome to those who can least afford to bear severe 
taxation and high rates of interest ? 

3d, A consideration is, that the contemplated exemption 
has a direct and powerful tendency to cripple the industry 
of the country by absorbing a large proportion of its wealth 
into the debt of the government. If the national bonds 
should be relieved of taxation for thirty years, no more will 
go abroad for sale, and those now in Europe will be returned 
upon us. Of that there can be no doubt. The difference 
occasioned by the exemption here, which does not attach to 
bonds held abroad, will be so great as to insure their return 
to the American market. That this will make the working 
capital of the country scarce and high, and thus greatly in- 
jure all the industry of the nation, especially that engaged 
in manufactures, is beyond a question. 

The last consideration we shall name is, that the proposed 
measure is entirely unnecessary. Such a policy should never 
have been entered upon. It was bad financiering, even in 
the darkest hour of our national struggle, and is wholly 
inexcusable now. 

. But it may be replied, " The government cannot negotiate 
its loans at five per cent, unless the exemption is made." 
Very well ; then promise six. The rate of interest is far 
less essential than equality in the taxation by which that 
interest is paid. If one-sixth more interest is to be pro- 
vided for, there will be one-sixth more property on which to 
assess the tax that is to meet it ; the burden upon the peo- 
ple is not increased, only equalized. 

The British government pursued a wise financial policy 
during its great contest with Napoleon. It consolidated its 
national debt, issued only three-per-cents, and negotiated 
these on an average discount of about forty-one per cent. 
Her exigency was great, but the United States is under no 



CHIP. XII.] NATIONAL TAXATION. 345 

such extreme necessity. If a policy is adopted which com- 
mends itself to the capitalists of the world, American consols, 
at a low rate of interest, will, like the British, command 
money on the most favorable terms. But there must be no 
tricks, no subterfuges, no unjust exemptions, which sensible 
men well know are certain to breed public discontent, and 
imperil the national securities. All must be fair, honest, 
and just ; the resources of the United States are ample, and 
rapidly increasing ; we only need a wise and faithful admin- 
istration of them.* 

"We have said there was no necessity for the proposed 
measure ; but it would be well to decide fully and finally 
upon the policy of consolidation into one stock, at one rate of 
interest ; yet it is in no wise necessary to bind the govern- 
ment to issue the whole amount, as proposed, on thirty 
years. The debt is not all due at this time : if a part, say 
one thousand millions, were now authorized for thirty years, 
when that was taken up the expediency of issuing more on 
so long a time could be more judiciously decided upon than 
at present ; besides, if only a part were now offered, it would 
be taken with more avidity than if the whole were put at 
once on the market. Policy, therefore, as well as economy, 
requires a limitation of the issue of thirty years' bonds. 

The proposal to save thirty millions per annum, by issu- 
ing bonds at five per cent, untaxed, instead of six per 
cent, in order to form a sinking fund, we regard as idle and 
delusive. The project never will be carried through. Na- 
tional sinking funds have always failed of success, and, in 
the nature of things, always will ; besides, if such a fund 
were to be provided for, it could be done more advanta- 
geously without exemptions from taxation. 

* Since the foregoing was written, Congress has laid a tax upon the income 
derived from the government bonds ; but the same invidious exemption exists 
in regard to all other taxation, and, as predicted, gives rise to much dissatis- 
faction. 



346 DISTRIBUTION. [BOOK IV. 



CHAPTER XIII. 

FOREIGN INDEBTEDNESS. — I. ECONOMY OP FOREIGN INDEBTED- 
NESS. 

Pecuniary obligations, between different nations, may be 
of four different kinds : — 

1st, Individual Indebtedness* — This can only be of limited 
and temporary duration, since it must soon be paid, or 
wiped out by insolvency. 

2d, Corporate Indebtedness. — This is of two kinds : (a) the 
bonds or other obligations of incorporated companies formed 
for industrial purposes, the building of railroads, &c. ; 
and (6) the bonds of municipal corporations, cities, towns, 
and counties. These have been issued to an enormous 
extent in the United States, and a large amount have 
been disposed of abroad. These two kinds of indebtedness 
are alike in this, that they may be enforced by law upon the 
promisors. Property may be attached and sold, if it can 
be found ; and as, in the case of municipal corporations, 
there is rarely any deficiency in that respect, the latter are 
quite sure of ultimate, if not prompt payment. 

3d, State Indebtedness. — Nearly all the States of the 
American Union have contracted debts, and issued coupon 
bonds, which, to a considerable extent, have been sold 
abroad. These rest upon a different footing from the pre- 
ceding, since they cannot be enforced by any legal process. 
They are secured only by the honor of the promisor. The 
Constitution of the Union gives no authority to the general 
government to compel a delinquent State to regard its obli- 
gations ; and no foreign power, if disposed, would be allowed 
to enter the national territory. So there is no remedy. 
State indebtedness abroad must amount, at the present time, 
to many millions. 



CHAP. XIII.] FOREIGN INDEBTEDNESS. 347 

4th, National Indebtedness. — Great Britain has a debt, 
as heretofore stated, of eight hundred millions sterling ; but 
it is almost entirely held at home. The rate of interest on 
her consols is only three per cent, and there is little induce- 
ment for capitalists in America to invest in them ; but it is 
quite otherwise with the United States. Interest here is at 
least six per cent on the best securities. 

We may safely assume, that the civil war has caused, or 
will cause, the issue of .United-States stocks to the amount 
of nearly three thousand million dollars. According to 
the comptroller's statement, seven hundred millions of these 
have already gone abroad ; and it is certain, if the credit of 
the government is preserved, a large part of the balance will 
take the same direction. Is this desirable, or otherwise, 
economically considered ? 

II. THE EXPORTATION OF PUBLIC STOCKS. 

Whether the sale of such stocks abroad is desirable or 
not, will depend entirely upon the character of the commod- 
ities sent in return for them, whether these be for advan- 
tageous or disadvantageous consumption ; and this again 
will depend upon the financial and commercial condition of 
the country from which they are sent. Suppose one hun- 
dred millions sent to England, and returned in railroad 
iron, which, put into use, pays a net income of ten per cent, 
besides facilitating the transport of cotton and wheat, and 
thus adding to the national wealth. As these stocks pay 
the American holders but six per cent, and by selling them 
and investing the amount in railroads they get ten, there is 
a clear gain in income of 66|- per cent. The foreigner, on 
the other hand, who could only get four per cent for his 
money in home investments, now gets six, an improvement 
upon his income of fifty per cent. Both parties are benefited. 
On the other hand, if the amount sold were returned in 
fancy goods, jewelry, &c, which increased the consumption 
of luxuries, but in no way contributed to reproduction, 



848 DISTRIBUTION. [BOOK IV. 

the country would in a short time be poorer to the whole 
amount. The foreigner would hold his bond, and get his 
interest ; but the American would have nothing to show for 
it. Or stocks may be exported in payment for an actual 
balance of trade. If, with all our export of commodities 
and specie, there still remains an adverse balance, Ameri- 
can stocks of one kind or another may be sent and sold to 
adjust it. By this last operation, the debt is merely " ex- 
tended," or postponed ; and as the interest upon this must 
be annually paid, a larger export of commodities, specie, or 
stocks must be made in the future. 

If the foregoing illustrations of the manner in which a 
foreign debt may be contracted are correct, as we think will 
not be disputed, the remaining question is, what policy 
on the part of the United-States government could have 
secured in the past, or can secure in the future, a desirable 
return for its bonds sent abroad. 

If all bonds were sold for cash, and the specie sent in 
return, the operation would be simple, and its effects appar- 
ent ; but bonds, when sent abroad, in reality enter into the 
exports of the country, are negotiated through bankers, 
and their proceeds become " exchange." If a railroad 
sends its bonds abroad, the returns will probably be in 
the iron used for its construction ; but, if a city or State, the 
funds are to be expended at home, and the currency of 
the country is all that is desired by the sellers. The bonds 
go into the hands of a banker or agent, who negotiates 
them abroad, and holds the amount as foreign exchange, 
which he sells to the merchant, who wishes to remit for pur- 
chases abroad. As these operations increase the quantity 
of exchange for sale, they naturally promote importations, 
not of money, but of merchandise. And here we must 
ask pardon for again referring to the hackneyed theme of 
an inflated currency. If, at the time when bonds are thus 
being sent abroad, the currency of the country is expanded, 
prices generally advancing, profits enlarging, and there is 



CHAP. XIII.] FOREIGN INDEBTEDNESS. 349 

great inducement to extend trade, the importer, consciously 
or unconsciously, is affected by this state of things, and 
sends forward large orders. The consumption of foreign 
goods is encouraged, since they are easily paid for (in 
promises), at home and abroad. It will not be surprising 
if the consumption of the country is thus increased to the 
full amount of the bonds sold ; at all events, there can be 
no doubt that it will be increased to a very considerable 
extent. 

The fact that the sale of these bonds has brought into 
market a large amount of foreign bills of exchange gives 
the banks an inducement to increase their discounts, because 
there will be no call for specie to be sent abroad, the only 
thing they ever seriously fear. Thus, on every hand, facili- 
ties for expansion and additional consumption are multi- 
plied. At present (1865), American stocks are exported 
under circumstances absolutely appalling. With gold at 
forty per cent premium, foreigners can obtain them at Tip- 
per cent ; that is, at a discount of 28|- per cent. With 
the amount so disposed of, merchandise is purchased and 
returned to the United States, where it is sold at the ex- 
travagantly inflated prices of a redundant credit currency. 
What the consumer of the imported commodities is thus 
taxed, and what the country actually loses, it is neither 
easy nor agreeable to calculate. But such is the condition 
of our financial affairs at present ; and it is quite likely to 
continue, as no effectual measures are being taken at the 
present time to contract the currency. 

There are those who advise, as a remedy for the evils of 
over-importation under such circumstances, the imposition 
of a very high tariff, so that this influx of foreign goods 
may be prevented. But, however disinterested such coun- 
sel may be, the remedy proposed will not meet the case. 
We have already proved, if we have proved any thing in 
this work, that the quantity of currency is more influential 
in determining the amount of foreign importations than the 



350 DISTRIBUTION. [BOOK IV. 

rate of tariff duties. While there is a great excess of cur- 
rency, twice or thrice the legitimate amount required by 
the exchanges of the country, as at present, nothing short 
of absolute prohibition of all trade will prevent importa- 
tions, however high the tariff, which, although it does have 
a tendency to reduce the consumption of foreign goods, 
may be more than counterbalanced by a superabundant cur- 
rency. The remedy lies in another direction ; viz., in the 
restoration of the currency to a specie standard. This, al- 
though it should be a gradual process, would, as soon as 
it began, check importations and increase exports ; the pre- 
mium on gold would be reduced ; and our stocks, when 
sold abroad, would bring us in return the full amount of 
their value. The process of saving amongst all classes 
would at once commence. Debts, principal or interest, can 
only be paid by savings ; and economy will begin when con- 
traction is inaugurated. 

With the present inflated currency, with high prices, 
large speculative operations, and extraordinary profits, the 
idea of economy is simply absurd. Hence the great neces- 
sity of a change of policy. No country was ever being 
more rapidly depleted than the United States at the present 
moment (1865), though the fact will only be realized when 
the consummation of the present disastrous policy has been 
reached. 

FALLACIES RESPECTING FOREIGN INDEBTEDNESS. 

No sentiment or opinion is more common, perhaps, among 
the people, than that it is very undesirable, or dangerous 
even, to have the national debt held abroad. Is this opinion 
well founded ? 

1st, A debtor cannot always choose who his creditor shall 
be. If deeply involved, those will hold his securities who 
are most able to hold them. They will, like commodities, go 
where they are most wanted, where they will bring the 
highest price. 



CHAP. XIII.] FOREIGN INDEBTEDNESS. 351 

2d, It makes little difference to the debtor, if he can meet 
his obligations when due, who may hold them. There is 
no friendship in trade. Native or foreigner will alike de- 
mand his pay, when he has a right to do so. 

If these propositions are true, we see that it is quite im- 
possible to prevent foreigners from purchasing our national 
securities, and of little importance if we could. It is a great 
misfortune, that we are deeply in debt as a nation. If that 
indebtedness were wholly to our own people, it would be 
quite favorable ; for then, as a people, we should owe nothing 
at all, since what was to the debit of one citizen would be 
to the credit of another : but if this cannot be, and if capi- 
tal is worth more to us than it is to others, then is it not 
fortunate if others are ready to loan us theirs, that is, are 
ready to take our public indebtedness ? As an admitted 
fact, the use of capital is about twice as valuable in the 
United States as in England : why, then, should we not 
allow Englishmen to hold our public debt ? 

We are aware that there is a deep prejudice in the public 
mind against this. That prejudice has influenced the finan- 
cial action of the government. When the war of the Re- 
bellion broke out, and vast demands were made upon the 
national treasury, instead of looking abroad for capital, 
and offering our loans in foreign markets, on favorable 
conditions, such a course was officially denounced as de- 
rogatory to the American people. Foreign capitalists were 
actually snubbed, if we may use so unscientific a term. The 
Confederates on the other hand, took the wise precau- 
tion, from the outset, to establish their credit abroad, and 
negotiated loans as extensively as possible. This fact gave 
strength to their cause, since they soon built up in Europe 
a large pecuniary interest in their success. A foreign loan 
to the United-States government of one hundred millions 
in the latter part of 1861 would have saved the country 
several hundred millions, inasmuch as the suspension of 
specie payments might thus have been postponed for a 



352 DISTRIBUTION. [BOOK IV. 

twelvemonth, and perhaps even been avoided through the 
war. By this means, the prices of all the government had 
to purchase would have been kept clown to the natural 
standard. This measure, if accompanied with the expul- 
sion of all bank currency from circulation and with the 
issue of government notes to take their place so far as de- 
sirable, would, in the end, have saved a great part of the 
present national indebtedness. 

But, whatever may be true in regard to the past, it is 
unquestionably ah object of much importance to secure 
foreign loans in the future at a low rate of interest. It is 
not a question whether we shall owe a foreign debt, for 
that is certain ; but whether we shall negotiate it abroad at 
par at five per cent in gold, or at home at six per cent in a 
depreciated currency. If bonds were made payable, prin- 
cipal and interest, at London, Paris, Hamburg, and Frank- 
fort, in the currency of those places, and suitable efforts 
were made to inform foreign capitalists in regard to the 
resources of the United States, there is not the slightest 
doubt that most advantageous operations might be made. 

But this, we are aware, cannot be done so advantageously 
now as if we had a sound currency. At present, we could 
only negotiate at a discount proportionate to the discount 
upon our currency ; say, about thirty or forty per cent : but 
even that rate would be more favorable than negotiations 
at home. No financial operations can be made to the best 
advantage anywhere, until the currency is restored to a 
specie basis. Then the credit of the nation will be fully 
established, and its loans at five per cent may be sold at real 
par ; that is, for a currency equal to gold. 

What the objections to foreign loans are, we have never 
heard stated ; those who have opposed such loans having, 
so far as we have seen, contented themselves with denuncia'- 
tion : but the argument which seems to be floating in the 
public mind is, that such a debt will give foreigners an ad- 
vantage over us, since they may, at any time, combine to 



CHAP. XIII.] FOREIGN INDEBTEDNESS. 353 

send back our bonds, sell them for what they will bring, 
carry off the specie, and throw our banks into suspension. 
A frightful result, indeed. But is there any foundation for 
such a supposition ? Do not men act according to their in- 
terests ? When hundreds of millions of our stocks are held 
abroad, is it likely that the holders will " combine " to send 
all, or any large amount, of them back, and force a sale, 
when they cannot do so except at a great loss to them- 
selves ? 

What object would be gained by it ? What damage would 
they do us ? If they sacrificed their stocks, we should buy 
them in at great advantage. 

But it may be said, that they might drive our banks into 
suspension. Possibly they might ; but what of that ? The 
banks are accustomed to it : it would be nothing new or 
uncommon. Besides, if the stocks were held at home, and 
money became scarce, or the credit of the government was 
suspected, the public stocks would be thrown upon the 
market at once, and with the same result. British consols 
are thus thrown upon the market : why not American 
stocks ? 

From whatever point of view we may look at the subject, 
we find there can be no well-founded objection to the sale 
of American stocks in Europe. On the other hand, such a 
sale of them must be advantageous, when made under a sound 
currency. 

FALLACIES RESPECTING A NATIONAL DEBT. 

1st, That a national debt is public wealth. 

" The funded debt of the United States is, in effect, the addition 
of three thousand millions to the realized wealth of the nation. . . . 
Jt is three thousand millions added to its available capital." * 

* See pamphlet issued by " Jay Cooke, General Subscription Agent for the 
Sale of Government Bonds," entitled, " How our National Debt may be a 
National Blessing." Philadelphia, 1865. 

23 



354 DISTRIBUTION. [BOOK IV. 

If this is so, it is fortunate, so far as the financial condi- 
tion of the country is concerned, that the Rebellion took 
place ; that it continued so long, and cost so much. Had 
it lasted long enough to have made the debt tenfold greater 
than it now is, the " available capital " of the nation would 
have been correspondingly enlarged ; and, of course, its 
power of production so much increased. It must be a mis- 
fortune, economically considered, that the war closed so 
early. But let us examine into the truth of the assertion 
that " a national debt is public wealth." 

How was it created, and for what ? 

It was contracted for war expenditures. The operation 
was simply this : A certain part of the people, having the 
ability to do so, furnished the nation with the means to carry 
on the war. These persons became the creditors of the 
government, and they now hold the public stocks. All the 
rest of the people are debtors, and jointly owe the amount 
of the debt. It is a lien upon estates, personal and real, and 
must remain so until liquidated. Are those who are the 
debtors to the bond-holders any richer in consequence of the 
existence of the public debt? Certainly not: they are just so 
much poorer. They must subtract from their incomes, each 
year, so much as they have to pay for interest on the na- 
tional debt. Are the bond-holders any richer in conse- 
quence of the creation of this debt ? If they actually loaned 
money, that is, coin, as some did in 18(31, for which they are 
receiving only the usual rate of interest, they are neither 
richer nor poorer for the operation. They have got public, 
instead of private, securities for their funds. If they subse- 
quently loaned mere credit currency, or capital at prices 
advanced in consequence of the depreciation of the currency, 
then, in so far, they gained what the government lost ; or, 
rather, what that part of the people lost who must pay the 
debt and interest. There was no increase of wealth in con- 
sequence of the increase of prices, but merely a transfer of 
commodities from one party to another, without an equiva- 
lent. 



CHAP. XIII.] FOREIGN INDEBTEDNESS. 355 

But " the national debt is public wealth." Then it fol- 
lows, that, if the national debt were repudiated, the nation 
would be three thousand million dollars poorer. Is that 
so ? Surely not. The holders of the stocks would be 
poorer, doubtless, by the amount of their bonds, which enti- 
tle them to interest semi-annually, and final payment in 
gold ; but just what they lost their debtors would gain, and 
the general wealth of the nation would not be affected to the 
amount of a dollar, except, that, in so far as the debt is 
due to persons abroad, the repudiation of it would save that 
amount to the nation. Other than this, neither the security 
nor the insecurity of the national debt has the least effect 
in determining the national wealth. 

2d, But, agaiii, it is said that " the debt is active, available 
capital ; " and, in illustration, it is said " that a man having, 
say, twenty thousand dollars of the bonds, can engage in any 
kind of business at once, just the same as if he had so much 
cash capital." 

Now, what is the fact ? The bonds being good securities, 
the holder can exchange them for cash, and with this can 
obtain any description of capital he may need. The bonds, 
then, are not capital, but only the security upon which capi- 
tal may be had. If the holder had notes against individu- 
als of unquestionable credit, he could do the same. Are 
private notes, then, capital ? Surely not. The man who, 
having invested his money or capital in public securities, 
wishes to exchange them again for capital, can do so read- 
ily, because the nation is pledged to repayment, with inter- 
est. Bonds, while the credit of the government is sustained, 
are only a very convenient form of credit. They have no 
element of capital about them. A thousand billions of them 
would not add a farthing to the capital or wealth of a nation, 
or increase the productiveness of any department of indus- 
try. 

So far from aiding production, a national debt has an 
effect directly opposite. It depresses industry by the 



356 DISTRIBUTION. [BOOK IV. 

taxation it imposes, and reduces its power to compete 
with other countries. If a laborer pays fifty dollars per 
annum more for the commodities he consumes, in conse- 
quence of taxation occasioned by the interest upon the 
public debt, then he must have fifty dollars more wages, or 
reduce his style of living to such an extent as to save that 
sum. If the former, his higher wages will enhance the cost 
of products, and he will be less able to compete with the 
foreign manufacturer or producer. 

3d, The third fallacy is, that a public debt gives stability 
to government. 

Upon what should the security of a government depend ? 
Evidently upon the convictions of the people that it is a 
good government ; that it secures to them life, liberty, and 
the pursuit of happiness. Any people who know they have 
such a government, will need nothing to assure their loy- 
alty and attachment. Where government rests upon uni- 
versal suffrage, the power is wholly in the hands of the 
people, and no law or constitution can have any perma- 
nancy, that does not receive their approbation. Any thing 
that is regarded as oppressive and unjust will certainly be 
abolished. 

France has a large national debt ; yet her government has 
been revolutionized time and again, without any reference 
to that fact, and without at all disturbing the security of 
the rentes. National debts will be paid, if the people 
please to pay them ; and governments will be sustained, 
if the people choose to sustain them. 

But it is said, that, since every person who owns a part 
of the public debt will be interested in the permanency of 
the government, all such will certainly be loyal ; and, as 
these will be in great numbers scattered over the whole 
country, and belonging to the most influential classes, 
their social and political co-operation will afford security to 
our political institutions. Such reasoning assumes, that 
every man who owns a certificate of stock, will, on that 



CHAP. XIII.] FOEEIGN INDEBTEDNESS. 35T 

account, be loyal to the government. Let us examine the 
matter. How numerous are those bond-holders who are 
expected to sustain the government and its debt ? 

(1) There are those who directly hold the bonds. 

(2) Those who have stock in State and national banks 
whose capital is invested in government securities. 

(3) Those who have deposits in savings institutions, the 
funds of which are largely invested in public stocks and 
in banks, whose capital, as just stated, is in the same kind 
of investment. 

These are the classes on whom reliance is placed to give 
stability to government, in consequence of the interest they 
are supposed to have in the public tranquillity, as security 
for the national debt. 

What the aggregate number of persons in all these classes 
may be, we have no means to determine ; but it is, doubt- 
less, much less than most people imagine. For — 

(a) Some seven hundred millions of the bonds are held 
abroad. 

(b) Many millions are held by aliens in this country. 

(c) A large amount is held by females. 

(d) Vast sums are held by trustees and guardians. 

(e) Of the savings-banks depositors, who are interested 
to a limited extent, a majority, probably, have no vote. 

(/) It is well known, that the capital stock of the cur- 
rency banks is held largely by widows and orphans. 

Q/) A large part of the debt is absorbed by great capital- 
ists, holding $50,000 to $500,000 each. 

How many votes, then, can all these parties give ? The 
whole number of voters in the United States is some five 
millions. What portion of the whole belong to the above 
classes ? Certainly a very small share indeed. 

But this is not a full view of the case. Of those who do 
own stocks, and can vote, very few — not one in ten, proba- 
bly — have a sufficient ownership to counterbalance the 
amount of taxation they encounter in consequence of the 



358 DISTRIBUTION. [BOOK IV. 

debt. The average amount to the credit of each person in 
the savings banks of New York and Massachusetts is about 
$225 ; and we may safely assume that to be the general 
average throughout the country. Then it is quite certain 
that an immense majority have an interest in the savings 
hunks of not over $200. What is the interest of all these 
Small holders, in reference to repudiation? 

For example, a Laboring man, having $200 in bonds or 
in a savings deposit, expends $400 per annum, derived 
from his wages, Ibr articles required in the support of his 
family. What- amount of taxation will he incur annually, 
in consequence of the national debt? Is it not a very mod- 
erate estimate, thai ten per cent of all his expenditures will 

be occasioned by (lie higher duties, taxes, excise, A'c. Ten 

per cent on $400 is $40, which this man must pay annually; 
while his whole income from the $200 in bonds, or savings- 
bank deposit,, is only $12. Is it lor his pecuniary interest 
that the public faith be kept inviolate? If he must pay $40 
annually, while he gels but $12, how long will it- take to use 
up the $200 he has in government bonds? In less than 
eiglvi years, he. would have lost a sum equal to the amount 
of his slock, and then be for ever after liable to the same 

amount of taxation. Very clearly, the sooner the public 
debt, is repudiated, the better for this Laborer, though hold- 
ing $200 in the public funds. 

We make the same comparison in regard to a man who 
holds $1,000 in stock. His income we will suppose $2,000, 
which he expends. On Hie scale before given, he will pay, 
in increased prices, $200, while his coupons are but $60 per 
annum ; a balance against him of $140. How long will his 
interesl require that the coupons be paid ? Clearly, the 
sooner they are worthless, and the taxation they impose 
removed, the better. Another view may be given, of the 

relations of the debt to I he, population of the country. It 
may be assumed, that the debt will be equal to about $100 
to each person, if the population is thirty millions. Then a 



CHAP. XIII.] FOREIGN INDEBTEDNESS. 359 

family of five persons owe $500 of the public debt, and, on 
an average, must pay the annual interest upon the same ; 
say, from $30 to $40. A little reflection will satisfy any 
one, that the number of families that hold $500 of the 
national bonds, compared with the whole number, must 
be very small ; and, therefore, that a vast majority can have 
no pecuniary interest in securing the payment of the na- 
tional indebtedness. 

In these illustrations, we see the folly of the assumption 
that a public debt gives security to government. Of all who 
are directly or indirectly owners of the public obligations, 
not one in twenty has so large an interest that he would 
not be greatly benefited by its repudiation. Of those who 
vote, probably not one in fifty has an interest in the public 
debt sufficient to counterbalance the taxation he must en- 
dure in consequence of its existence. How idle, then, to 
talk of the stability a national debt gives to a republican 
government, under which the will of the people is the su- 
preme law ! 

On the other hand, who does not see plainly that such a 
debt, from the necessary taxation it imposes, must be a con- 
stant Source of irritation and dissatisfaction ; that a party 
will inevitably be formed for its overthrow, and that in such 
a party will be found sectionalism and all the bad and dan- 
gerous elements of society ? The future peace and prosper- 
ity of the nation is more endangered by the national debt 
than by all other causes. In a country where the people 
have little or no power at the ballot-box, a public debt may, 
doubtless, be made an effective engine of tyranny, and con- 
tribute to the enslavement of the masses ; but it is quite 
otherwise where suffrage is universal. 

4th, A fourth fallacy is, that a national debt ensures pro- 
tection to home industry, since the heavy taxation it causes 
will, if laid on foreign goods, secure that object. Having 
already discussed the question of protection, we need not 
now enter upon it ; but remark, that a large national debt 



360 DISTRIBUTION. [BOOK IV. 

does not make it certain that there will be a high protective 
tariff. Great Britain has the largest debt of any nation in 
the world ; yet she has abandoned her protective system. 
She has become satisfied that such a luxury is too great a 
hinderance to her commercial prosperity, too heavy a burden 
upon her home industry ; and that she can only compete 
with other nations, in her manufactures, by maintaining 
freedom of trade. No nation has had a larger experience 
6f the operation of a severe protective system than Great 
Britain, and in none is it more heartily repudiated. 

5th, But, again, it is said that a national debt is desirable, 
as a basis for a national currency. That this is an idle 
assumption, we have already endeavored to show. No such 
foundation is needed for any currency which the good of a 
nation demands. It is a false and pernicious system which 
requires any connection with national indebtedness. Debt 
is no sound basis for banking. Banks should be created to 
loan capital that exists, not debt for capital that has disap- 
peared. 

We will briefly notice one other fallacy in regard to a na- 
tional debt ; viz., that the generation which contracts it is 
under no obligation to pay it ; since, having been contracted 
for the good of the country, posterity ought to share, at 
least, the burden of it. What is the principle involved in 
this statement ? Clearly, that one generation has the right 
to create a debt for such purposes, and to such an extent, as 
it deems best, and impose on another the payment of the 
whole, or of such part as it does not choose to discharge out 
of its own resources. Can this be true ? Does it not follow 
from this, that one generation has the right to enslave an- 
other, since, if it can impose a tax, it can enslave ? for, to the 
extent of the tax, it is slavery, or labor taken without com- 
pensation. Suppose the tax carried to such an extent ns 
to consume all the products of the laborer over that which 
is absolutely necessary to existence. If the present genera- 
tion may lay a tax of ten dollars on each producer for all 



CHAT. XIII.] FOREIGN INDEBTEDNESS. 361 

time to come, it may lay one of a hundred dollars, or a thou- 
sand. If it may take away a fourth of a man's income, it 
may take a half, or why not the whole ? The right to tax 
posterity at pleasure is the right to establish a most terrific 
despotism ; and yet this is one of the popular sophisms of 
the present clay. 

A slave is one who does not enjoy the fruits of his labor, 
further than to preserve his efficiency, and to keep good the 
number of laborers. It is little matter in what way this is 
brought about, whether by lawless violence or legal exac- 
tions. The result is the same. The British laborer feels 
it, has always felt it, and, so far as we can judge from the 
present, always will. He cannot be bought and sold. That 
is chattelism ; that would convert him into capital : but his 
earnings can be taken from him to pay interest upon debts 
contracted long before he was born, and for purposes that 
all now admit were useless. 

If such is the effect of the principle which establishes the 
right to entail upon posterity unlimited indebtedness, can it 
be safe, economically considered ? Surely no man can give 
an affirmative answer. " But nations must sometimes cre- 
ate debts." To this we reply, — 

1st, That the occasions when nations are really so com- 
pelled, or can rightfully do so, rarely occur. The great 
struggle through which the United States has just passed, 
is one of the strongest cases that has ever been presented ; 
and yet, had the currency been sound at the commencement, 
and had a sufficiently effective system of taxation been 
adopted, there is little doubt that the war expenditures 
might have been met as incurred. It is certain that almost 
all the service and material was furnished by the country ; 
and therefore, had the taxation been so laid as to apportion 
the amount judiciously and fairly, the whole cost might 
have been provided for, and we to-day be essentially free 
from debt. Without entering, however, upon this question, 
we can safely assume that the whole should be paid off 



362 DISTRIBUTION. [BOOK IV. 

within the present century, which will also Jbe within the 
present generation, as a generation is reckoned. We are 
told by the Secretary of the Treasury (Report, 18G5), that 
two hundred millions paid annually, for principal and in- 
terest, will extinguish the debt within the period named. 
Does any one doubt the ability of the people to do this, if 
they will ? Is it not their duty, if they can ? 

Unless it is the settled policy of the nation to have a per- 
manent debt, it should at once commence the payment, and 
continue to discharge it in a regular, systematic manner ; 
for, unless the work is commenced promptly, it will never 
be clone. Like England, and other European countries, we 
shall submit to never-ending taxation for mere interest. 

We need not pursue the examination of these fallacies 
further : indeed, an apology is demanded for noticing them 
at all. And that apology must be found in the respectable 
and semi-official source in which they originated. The 
pamphlet referred to would be of little consequence, how- 
ever, were it not for a prevalent popular delusion, that, 
somehow or other, a national debt is real wealth. It is that 
fallacy which we have attempted to expose. 

In conclusion, we will only observe that any people capa- 
ble of maintaining self-government, and worthy of free insti- 
tutions, will need no other bond of union than their common 
loyalty ; no other sentiment than that of honor and hon- 
esty, to induce them to sustain a national debt, contracted 
in good faith for the preservation of national existence. 



r 



CHAPTER XIV. 

RISE AND GROWTH OF THE MODERN FINANCIAL SYSTEM. 

No large national debt has ever been paid, or in any way 
discharged, except by repudiation. The debt of the old 
French monarchy was wiped out with the " assignats." 



CHAP. XIV.] MODERN FINANCIAL SYSTEM. 363 

The debt incurred in the American Revolution vanished in 
worthless " continental money." The present debts of Eng- 
land, France, Austria, and other European countries, are so 
large, the constantly increasing demand for more extensive 
and costly armaments so pressing, so absolutely overwhelm- 
ing, that the hope of any payment of the principal cannot be 
reasonably indulged. A national debt may be regarded, 
under the existing war policy of the world, as a fixed insti- 
tution, an inevitable appendage of government. 

The United States, which, up to the time of the great 
Rebellion, formed the only exception among the principal 
nations of the earth, has entered upon the same course. 
That general system of finance, of which national indebted- 
ness forms so important a fact in its influence upon the 
industrial interests of mankind, deserves a careful consid- 
eration. 

When William of Orange succeeded to the throne of 
England, Louis XIV., then at the zenith of his power, 
refused to acknowledge him as a legitimate monarch, and 
espoused the cause of the exiled Stuart. War, of course, 
followed. But fighting, in consequence of the invention of 
gunpowder, and the changes it gradually introduced into 
warfare, had become an expensive luxury ; a game which 
kings, with their limited and uncertain revenues, could ill 
afford to play at, particularly for a great length of time. 
War with one so powerful as the Grand Monarque could 
not be safely commenced or successfully prosecuted, while 
every penny must be extorted from a reluctant and now 
independent Commons, and the taxes immediately assessed 
on the large land or other property holders of the realm. 

Such was the difficulty which King William encountered ; 
but, fortunately for his fame, he was a shrewd financier, as 
well as an able soldier. Up to this time, England had never 
had a permanent organized national debt, a national bank, 
or any regular and reliable system of revenue. Grants and 
subsidies had been voted, from time to time ; duties and spe- 



864 DISTRIBUTION. [BOOK IV. 

cial taxes had been imposed; but these were not to be 
depended upon.* 

The monarch might and did borrow money from time, 
to time, in great emergencies, but on the most disadvan- 
tageous terms. The credit of the government was always 
low, because there was no regularity or system in the pub- 
lic finances. Men had no confidence in the responsibility 
or punctuality of the government. William changed all 
this. He borrowed for a specified period, and promised the 
punctual payment of the interest semi-annually, and the prin- 
cipal when due ; and pledged " the public funds " for the 
fulfilment of his promises. Hence the public securities were 
called " the funds." 

He negotiated loans and issued stocks. He granted an- 
nuities, upon the payment of specific sums. Interest and 
principal were secured by a pledge of the public funds, or 
revenues derived from various sources. 

This put a new face upon the financial affairs of England : 
but something further was desirable; viz., an agency by 
which the national debt would be readily managed, and its 
semi-annual interest promptly paid. 

This was accomplished by the incorporation of a national 
bank, consisting of the holders of the public stocks, to the 
amount of £1,200,000. 

One thing more was wanting ; viz., a permanent and suffi- 
cient income, to meet not only the interest on the accumu- 
lated debt, but the current expenses of the government, 
already large, and constantly increasing. To effect this, a 
land-tax was established ; small, indeed, in amount, and 
upon a fixed valuation, so that it could not be increased with 
the increasing value of the land. 

* That this has been disputed, on the authority of Mr. Macaulay, we are 
well aware ; but we do not find any thing in his statements that contradicts 
our views of the subject. Partial efforts, more or less successful, for the es- 
tablishment of a thorough financial system, had already been made in Eng- 
land, Italy, and some other countries of Europe ; but the great work was 
at length successfully inaugurated during the reign of William and Mary. 



CHAP. XIY.] MODERN FINANCIAL SYSTEM. 365 

A system of duties on all imports was also enacted, and 
an excise laid upon all home manufactures and products. 
.In short, a system of indirect taxation was adopted, far 
more general and effective than any which had before 
existed. 

Thus was completed the grand triad of the system of 
finance, inaugurated by the English Revolution; viz., — 

FUNDING, BANKING, AND INDIRECT TAXATION. 

The immediate, as well as ultimate, results of the new 
system are alike remarkable and worthy our attention. 

1st, The credit of the government was now firmly estab- 
lished. 

It could borrow more money, and at a lower rate of inter- 
est, than ever before. Men of small means could now loan 
money to the government, and with entire confidence. The 
whole community could be laid under contribution. 

2d, Government Was enabled to carry on war by borrow- 
ing, instead of imposing taxes. War could be waged with 
credit, instead of cash. Parliament had only to vote a loan. 
No expenditure need be stopped for want of funds, while the 
national credit was unimpaired. This was a great change. 
Many a war had been abruptly closed for want of funds. 
There was to be no such necessity hereafter. 

3d, This course removed the fear of immediate and press- 
ing taxation from the rich, because the greater part was 
now to fall upon the masses of the people, who pay taxes, 
not in proportion to property, but 'to consumption. This 
was an agreeable consideration to the wealthy classes ; and 
the more so, because, as the public stocks were multiplied, 
better opportunities were afforded for investments. 

4th, Especially was the new policy acceptable to the aris- 
tocracy, who, at that time, even more perhaps than now, 
monopolized the public offices, and whose revenues and pat- 
ronage were increased by governmental expenditures. 



866 DISTRIBUTION. [BOOK IV. 

Wo have said that William became involved in a war with 
France. In eight years, besides expending all he could 
raise in taxes, he increased the national debt from £1,200,- 
000 to £21,500,000. A peace of five years followed Anne's 
accession (1701), during which five millions of the debt 
were paid off. Then came the war of the Spanish succes- 
sion. The ostensible object was " to humble the Bourbons, 
and deprive Philip A', of his crown." This lasted eleven 
years, and added £37,500,000 to the debt, besides consum- 
ing £6,500,000 raised in taxes; so that, at the peace of 
Utrecht, the national debt was £54,000,000. 

In 1727, the House of Hanover succeeded to the throne, 
in the person of George I., and then came a peace of twenty- 
six years: but, in all this time, the public debt was reduced 
to the extent of only £7,500.000. Why? Because it was 
no object with the riding elass to pay oil* the debt, since 
the national stocks had become the most eligible investments; 
so the resources of the nation were squandered npon the 
court. In 1739, therefore, the debt was £46,500,000. when 
the war of the Austrian succession took place. Its specific 
object was to secure the throne of Austria to Maria Theresa ; 
and the debt was carried up to £78,000,000. Then came 
eight years of peace ; but the debt was reduced only three 
millions. 

In 1756 commenced what was known in this country as 
" the old French War;' or - k the Seven Years' War." It was 
caused by a dispute about colonial boundaries, or. as the 
wags of those days said, " about a few acres of snow in 
Nova Scotia ; " but it eventually involved a great part of 
Europe, and the American colonies of both France and 
England. 

Then followed a peace of twelve years ; but only £10,500,- 
000 were paid off. The war of the American Revolution 
lasted seven years, and carried the debt up to £239,000,000. 
In the ten years of peace and prosperity which followed that 
great contest, the public debt was reduced but £5,000,000, 



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CHAP. XIV.] MODERN FINANCIAL SYSTEM. 367 

notwithstanding that the resources of England were largely 
increased, and her ability to reduce the national indebted- 
ness was ample, if the disposition to do it had existed. 

In 1793 began the war that grew immediately out of the 
French Revolution. This lasted for nine years, and increased 
the debt to £526,000,000. Then, in consequence of the 
Treaty of Amiei a period of one year's peace intervened ; 
but it was only an armed truce : military preparations were 
continued, and the public debt was increased £3,000,000. 

In 1803 commenced the final struggle with Napoleon, 
which terminated in 1815, leaving the British debt at 
£865,000,000 sterling. During the twenty years following, 
£87,000,000 were paid off. This was from necessity, rather 
than choice ; a measure of policy adopted to secure the 
credit of the government. In 1835, the debt was but £778,- 
000,000 ; but the emancipation of eight hundred thousand 
slaves in the West Indies added to the debt £20,000,000. 
It has stood at £800,000,000, very nearly, ever since. We 
give in Diagram No. 8, inserted here, an illustration of 
the facts as we have stated them. 

We have given this history of the rise and p ogress of 
the debt of Great Britain, as exhibiting the natural effects 
of such a system as she inaugurated during the reign of 
William and Mary. But we have shown only a part of the 
system. The history of the national bank is interwoven 
with that of the national debt. It was incorporated in 1697, 
•with a capital, as we have said, of £1,200,000. As the 
public debt was enlarged, the capital of the bank was in- 
creased ; that is, more and mo e of the debt was incorpo- 
rated into the bank organization, until it amounts, at the 
present time, to £14,475,000. This bank, as before stated, 
has never had a shilling of capital to lend to the people ; 
it has simply held a certain amount of the national stocks, 
and, upon the credit of these, has issued its own promises 
to pay ; and these promises, having been made a legal tender 
by Parliament, have circulated as money. 



368 DISTRIBUTION. [BOOK IV. 

The government lias no interest whatever in the bank, so 
far as its profits are concerned ; but it has always stood by 
it, sustained it by its influence and legislation, besides allow- 
ing a large annual sum for its services, in paying the divi- 
dends on the public debt. When the bank was obliged to 
suspend payment, in 1797, the government came to its 
rescue, by legalizing the act ; and the bank went on issuing 
its notes during the twenty-three years that followed, and 
sometimes to an amount so excessive, that gold was carried 
up to a premium of twenty-five to forty per cent : generally, 
however, during this period, the difference was small, — some 
ten to fifteen per cent. The last feature to be noticed in 
this connection is that system of indirect taxation which 
became so general and efficient under the new financial 
policy. Duties, as we have said, were laid upon every 
description of foreign merchandise, and excise upon all 
articles of home production. This measure was indispensa- 
ble to the full development of the system. When the 
masses of the people can be taxed in such a manner that 
they are almost unconscious at the moment that they are 
taxed at all ; when the amount taken is in very small sums, 
so that, if the fact were understood, it would hardly be 
appreciated ; when the aggregate amount for a month or a 
year cannot be ascertained, except approximately, and then 
only by long and intricate calculation, — taxation may be 
Carried to its utmost possible limit, so far as to leave to the 
poorer classes only the bare necessaries of life. Such a 
people may feel that they are very poor, but they will regard 
this as the consequence of their low wages ; they may feel 
that they are oppressed, but will naturally attribute it to 
the want of justice or generosity on the part of their 
employers. The true cause of their poverty and suffering 
they do not perceive. The gross taxes imposed in Great 
Britain in 1859 amounted to seventy-three millions sterling, 
equal to $14 per head, through the whole population, or |70 
for a family of five persons. Such a taxation, if collected at 



CHAP. XIV.] MODERN FINANCIAL SYSTEM. 369 

all, must be taken, as it is taken, imperceptibly, as it were 
a penny at a time. This grand system of currency and 
finance, so fully established in Great Britain, has at this 
time become the policy of all civilized, and to some extent 
even of uncivilized countries, — funding, indirect taxation, 
paper-money banking. 

EESULTS OF THIS FINANCIAL SYSTEM. 

1st, An immense extension of the war system. Prior to the 
introduction of this policy, standing armies and armaments 
were exceedingly limited. Now all Christendom is armed, 
by land and sea. France leads the van, with an army of 
some 700,000 ; and each nation is struggling to create and 
support the largest possible military and naval establish- 
ment : and all this can be done of credit, if need be ; there 
is no limit to these prepartions, while national credit holds 
out. 

2d, Universal and constantly increasing indebtedness. This 
is true of nearly every country in the world. England, 
indeed, has not increased her debt for the last thirty years ; 
but almost every other government has been borrowing 
money from year to year, until many of them are as much 
burdened by their indebtedness as England, because, in 
proportion to their wealth and resources, they are as deeply 
involved. France, we suppose, is really more oppressed by 
taxation than England. France is a great nation of poor 
people, compared with England or the United States. She 
has but a small margin for taxation. The same, indeed, 
may be said of many other European nationalities. 

3d, Impoverishment of the masses. This is especially 
apparent in England. What has become of that yeomanry, 
once the pride of the country ? Their little estates have 
disappeared, have been swallowed up by the terrible system 
of taxation to which they have been subjected. The pleas- 
ant hedges which still surround the small enclosures, once 

24 



370 DISTRIBUTION. [BOOK IV. 

constituting the freeholds of her yeomanry, may yet be 
seen in all parts of the country. They are the monuments 
of an industrious, brave, and independent class of men, 
now extinct. These lands are indeed tilled by the hands of 
their descendants, no longer yeomanry, but peasants, almost 
the paupers of the nation. How strikingly true this is, may 
be seen in the fact that there are but one-third as many 
" holdings " at the present time as one hundred and fifty 
years ago, while the wealth and population of England bave 
doubled many times. How this has been accomplished, 
may be seen from statements made by Professor Levi of 
the whole taxation of Great Britain for the year 1858.* 

Total Taxation. Paid by the Upper Classes. Middle Classes. Working Classes. 

£73,000,000 £22,550,000 £30,930,000 £20,320,000 

From this analysis, it appears that the amount paid by 
the middle and working classes is equal to five-sevenths of 
the entire revenue, while those who monopolized the landed 
estates of the country, and an enormous proportion of 
its public stocks and circulating capital, paid but two-sev- 
enths. 

We have said that no large national debt has ever been 
paid or discharged, except by repudiation ; nor does it 
appear that such debts are likely ever to be paid, unless the 
war policy of the world is changed. All have been created 
by war, and are perpetuated by constant demand for addi- 
tional armaments. 

The economy of a national debt, under the modern 
financial system, must always impoverish the productive 
classes. Its entire influence on them is oppressive. It 
deprives them of their honest reward, by a false currency, 
which robs them of a large share of their nominal wages ; 
it imposes upon them, through indirect taxation, an undue 
proportion of the public burdens, and is, in fact, a stupen- 
dous enginery for depressing them, though perhaps not so 

* Levi on Taxation, p. 32, London edition. 



CHAP. XV.] INHERITANCE AND BEQUEST. 371 

intended. Hitherto we have known little of its effects in 
the United States. Until the present time, we have felt 
little pressure from public indebtedness and consequent 
taxation ; but the case is now altered. We have an im- 
mense debt, and a larger amount of annual interest than 
any other people on the face of the earth. Hence the great 
importance of understanding the whole subject of modern 
finance by the people themselves; for without such an 
understanding of it, however much they may suffer, they 
cannot hope for relief. They must know the cause of their 
suffering's, or they cannot apply the remedy. 



CHAPTER XV. 

ON THE LAWS OF INHERITANCE AND BEQUEST. 

Men die, and the property they have acquired or held during 
their lives must pass into the possession of others. May the 
person who is about to leave the world say to whom, his 
wealth shall immediately descend ? May he go farther, and 
say to whom it shall descend for all coming time ? May 
he go farther still, and determine what specific use shall be 
made of his wealth for ever ? Or shall the laws of the State 
decide the questions, — to whom, for what purposes, and for 
how long, the wealth of deceased persons shall descend ? 
Does the world and its wealth belong to the living or the 
dead, or to both in common ? If to both, what portion 
should belong to each ? If the dead are allowed to control 
a part, why not all ? Which pfirty, the living or the dead, 
will most intelligently decide how wealth can be advan- 
tageously employed in production, or in any other mode, for 
the benefit of the living ? 

These are the points involved in the subject of Inheri- 
tance and the testamentary disposal of property, and are 



372 DISTRIBUTION. [BOOK IV. 

important in an economical point of view, irrespective of 
all other considerations. These questions have been prac- 
tically decided by the laws and institutions of society in 
different ages and countries. Governments have always 
interfered in regard to the estates of deceased persons, to 
such an extent as to prescribe limitations and conditions. 
So far as these have been in harmony with instincts of 
humanity, and the laws of value, they have been beneficent 
in their operation. But all the wealth, all the institutions, 
all the interests of society, should ever be regarded as fully 
under the control of the existing generation of men. This 
should be a fundamental principle in civil polity ; and, if law 
may interfere in this matter at. all, it may do so to any 
extent the public interest shall demand. 

Mr. MeCulloch,* in his " Principles of Political Econ- 
omy" (page 267), says: "Every man should have such a 
reasonable power over the disposal of his property as may 
be necessary to excite his industry, and to inspire him with 
a desire of accumulating. But if, in order to carry this 
principle to the furthest extent, individuals are allowed to 
chalk out an endless series of heirs, and to prescribe the 
conditions under which they shall successively hold the 
property, it would be taken entirely out of the market ; it 
might be prevented from ever coming into the hands of 
those who would turn it to the best account ; and it could 
neither be farmed nor managed in any way, however advan- 
tageous, that happened to be inconsistent with the will." 

Mr. MeCulloch here recognizes the correct principle ; viz., 
that the interests of those who are laboring and suffering 
now, are paramount to the whims and caprices of those who 
have passed from the stage of action ; in other words, that 
the earth belongs to the living, and not to the dead. To 
exhibit the enormous abuses and perversions to which these 
mortmain holdings must lead, we need only refer to the old 

* Author of the " Commercial Dictionary," and one of the best writers 
of his time upon Political Economy. 



CHAP. XV.] INHERITANCE AND BEQUEST. 373 

countries of Europe, England especially, where millions on 
millions of wealth are held and used, not for the purposes 
originally intended, but often for the very opposite. Many 
of the objects for which benefactions are thus made, become 
obsolete or absurd ; yet the property must be held and mis- 
used, if really used at all. 

It has been said, that nothing is more unwise than to 
attempt to bind posterity with parchment ; and, the more 
enlightened the public mind becomes, the more apparent 
will be the utter folly of allowing the past to govern the 
present. 

Yet the author just quoted, advocates, with the most sur- 
prising inconsistency, the laws of primogeniture, and makes 
an argument, though a very weak one, in favor of giving 
the whole estate to the oldest son ! — an illustration of what 
has too often been found in the writings of English econo- 
mists, who seem generally to assume, in advance, that the 
laws and institutions of their own country are right, and 
therefore the laws of wealth must be made to appear in 
conformity with them. Mr. MeCulloch would probably 
never have been made a public officer, and held a lucrative 
position under government, if he had taught the opposite 
doctrine. 

In some countries, the laws have not only provided for 
the manner in which wealth may be disposed of by testa- 
mentary provisions, but have often ordained that certain 
estates shall be inalienable. Thus, the landed property of a 
people, seized by violence, has been made a perpetual inher- 
itance to the favored parties and their descendants for ever. 
This class of persons has often been invested with the 
powers of government ; and class legislation has strength- 
ened and increased what force or fraud had achieved. 

So far as a class, more or less strictly limited, or highly 
distinguished, reaches a position of property or influence 
by moral perfections, by high intellectual endowments, or 
by successful business operations, agreeably to the laws of 



374 DISTRIBUTION. [BOOK IV. 

wealth, and under the test of ordinary competition, it is not 
taken out of the principles heretofore laid down. But so 
far as it has been placed arbitrarily in the possession 
of large properties, and is maintained so by thwarting 
the action of natural laws, it is by that removed from the 
primitive rule of distribution, and requires to be separately 
considered. We shall regard it only from an economical 
point of view. 

The nobilities of the world have, in fact, been formed 
off-hand, generally out of the personal favorites of the 
monarch, or distinguished soldiers, by the grant of large 
privileges and valuable estates. Would this perpetuate a 
nobility ? On the one hand, we have the argument, a jwiori, 
that the possession of wealth tends to secure its own con- 
tinuance, both because possession is nine-tenths of all the 
points, and because the vis inertice is against a change ; that 
the family which has property to-day has a better chance, 
other things equal, to have it next year or next century, 
than those who have it not. But other things are far from 
equal, which introduces the argument from experience ; viz., 
that estates tend to go out of the hands of any special 
class. The forces that scatter are stronger than those that 
hold together. Outside is a hostility to the individual ap- 
propriation, that never ceases, arising out of the desires of 
the entire community for that particular property. There 
is not a sentient being who has not the instincts that would 
impel him to seize it if he could. Within, to hold the gates 
against the assault of the whole world, is the solitary pos- 
sessor. His strength must some time fail ; his vigilance, 
some time relax. 

Such, in a figure, is the tendency of wealth to scatter. 
By an order of things in which we can seem to see great be- 
nevolence, no family or class can secure the integrity of its 
estate. Otherwise, property would tend to aggregate itself, 
so as to crush competition, and leave the greater part of 
the world destitute. As it is, the foolish son dissipates the 



CHAP. XV.] INHEEITANCE AND BEQUEST. 375 

gatherings of the wise father, and alienates the lands that 
have been annexed, acre after acre, by prudence and fru- 
gality. A single break in the succession of industry and 
economy will scatter the accumulations of ages. This 
liability of the rich is the property of the poor. Just as 
surely as the lapse of ages wears down the craggy moun- 
tain-tops, to form the soil of the humble valleys, so surely 
do aggregations of wealth gravitate every hour to the gen- 
eral level. 

To contravene this provision of nature, the law of the 
land often shuts in these estates by arbitrary enactment 
or judicial interpretation, and so keeps out the busy, unre- 
lenting competition, which otherwise would, sooner or 
later, bring the proudest structure to the ground. All 
such legal arrangements may be summed up in — 

THE LAWS OP PEIMOGENITUEE AND ENTAIL. 

1st, Of the rightfulness of such laws. 

In the order of nature, no man brings with him into the 
world a store of wealth for his subsistence and support 
through life, or finds it waiting especially for him. His 
means of livelihood are to depend on the inborn faculties 
of appropriation, on the store of wealth already existing 
from which these may draw, and on the natural agencies 
of production which they may employ. But if the latter 
conditions are removed, and the man is forbidden access 
to the fields of labor, he is condemned to be destitute, in a 
greater or less degree, no matter how well endowed, or how 
fully he obeys all economic laws. With these open to him, 
he is certain of success. It hinders not at all, that all the 
wealth of the world is now taken up, that every inch of 
ground is possessed. Though utterly without legal claim, 
he is yet, in his faculties of industry and appropriation, 
sure to become the owner of some part of it, at least suffi- 
cient for his wants. 



376 DISTRIBUTION. [BOOK IV. 

The tiny tree pushes its way through the matted sod. It 
comes out, one little stem, two little leaves. The squirrel 
looks disdainfully over it. The ant can gnaw its trunk. 
Pounds of atmospheric weight are already on its fluttering 
expanse. Yet it stands. The world and the air are now 
absolutely lull, present not one inch of vacant space. Tho 
universe seems to have no room for the little stranger. Yet 
it grows. Simply confiding that the world had need of it, 
the seed broke its shell, and crept upward to the light. 
And in the same unshrinking faith of a mission and of 
room that shall he provided, it grows, atom by atom, till the 
biparted leaf lias become the giant tree, and takes its place 
in the crowded universe, with always room to grow, and 
never an inch to spare. 

So, in the state of nature, man enters on life, feeble and 
destitute, but with powers of absorption and assimilation 
as evident as those of the tiny tree. These, not human 
charity or human justice, award the world's wealth, and 
sustain the lives for wise purposes created. But, if the tree 
is planted in a pot, its capacity of growth is dwarfed to the 
dimensions of the place in which it finds itself. It cannot 
enlarge ; not because its vital germ is deficient, but because 
it is placed in a false position, and deprived of natural 
aliment. If the confines are too close, the tree starves and 
dies. 

This is precisely the injustice and mischief done by laws 
of primogeniture and entail. So far as they operate, they 
shut off the industry of the world (and the wants which 
that industry must supply) from its proper field. We have 
said that the liability of wealth to dissipate is the property 
of the poor. It is so. A man entering the world may have 
no claim to any share of its previous gains ; but he ha% a, 
claim to a chance at them. This is the provision nature has 
made for his maintenance. This is his inheritance. Ho 
has a right, at least as complete as the plant, to get his 
growth and his support out of the soil about him. There 



CHAP. XV.] INHERITANCE AND BEQUEST. 377 

is nothing in this view agrarian or communistic. It admits 
that property should be sacred ; but it asserts that it should 
be alienable. The right of property does not include the 
right of the wise to get wealth, and of fools to keep it. To 
shut up any part of the world, for the benefit of one, is to 
rob all others, not of it, but of their chance to acquire it 
lawfully. A system of entail dwarfs all existing industry, 
so far as it operates. It has even proceeded to beggar an 
entire people. There is, therefore, no economic censure too 
severe for it. 

2d, But, besides the general objections to such a system 
on the grounds of justice, we meet certain considerations 
of expediency that deserve notice. 

(1) The capital thus kept together by laws forbidding 
alienation is often so large that it cannot be managed by 
individuals for the best economic advantage. Of course, a 
government might provide for the preservation of properties 
not excessive. But it is not such that have been made per- 
petual ; and there can be no occasion to lock up, in this 
way, moderate estates. Great accumulations will be made 
under any free and peaceful government ; and it is neither 
the right of government, nor the interest of society, to inter- 
fere to scatter them. The sacredness of property makes a 
greater demand than the mere productiveness of capital. 
Besides, this has been collected, and is kept together, by 
economic virtues, which should ever receive their natural 
reward. But it is not in the order of things that such moun- 
tains of wealth should remain. They will be rent asunder, 
or worn away, in the lapse of comparatively few years. 

Many reasons might be given why wealth, in such aggre- 
gations, is never so efficiently managed ; but the assertion 
hardly requires proof. We find, in certain countries, exten- 
sive systems of polygamy ; but it is notorious that popu- 
lation does not advance as with those people where the 
Christian law of marriage is observed. Monopoly of wealth 
no more tends to reproduction than monopoly of wives. All 



378 DISTRIBUTION. [BOOK IV. 

this is true, even if the desire of increase remained the same ; 
but, — 

(2) Such aggregations of wealth destroy, in great part, 
the desires which lie at the root of all activity. The spring 
of industry is want. Let us take into calculation the sum 
of one million of dollars. It cannot be doubted, that this, as 
a reproductive agency, would be quickened by more desires 
if in the hands of one thousand men, than if in the hands 
of only one hundred. Without an attempt at mathematical 
accuracy, it is certainly true that the machinery of repro- 
duction would be set in motion by a deeper and broader 
stream of human wants. It is evident, that the impulse of 
the mass, the one thousand, will be greater ; but it may be 
questioned whether the impulse of each one is not greater 
in the former than in the latter case. Certainly the neces- 
sities of each will be more pressing : why not his activities 
more aroused ? How much mightier, then, the current of 
energy witli which the greater body moves on to its object ! 

On the other hand, if we suppose the sum to be vested in 
the possession of one person, we shall have the desires 
greatly weakened. This is not the man who, " from the 
rising of the lark to the lodging of the lamb," toils with 
unrelaxed nerve ; to whom every gain is needful bread ; 
from whom every saving removes a pain. 

Erskine, as his courage sank in dismay on his first plead- 
ing, seemed " to feel his children pulling at his gown," and 
so took heart to go on. Everywhere it is the hands of 
the little ones, plucking at the sleeve, that elevates labor 
into heroism. 

(3) Such aggregations draw off an undue proportion of 
wealth into luxuries. This is the necessary consequence 
of what has just been exhibited ; while its own results will 
appear more specially in the department of " Consumption." 
When the stern pressure of necessity is removed from 
human activities, they bound into a thousand sports and 
caprices. 



CHAP. XV.] INHERITANCE AND BEQUEST. 379 

(4) Such aggregations of wealth often come to men not 
competent to administer them, either in use or enjoyment. 
This appears in the very necessity of a law of entail. 

Under a free system, capital is sure to go into the hands 
best fitted to manage it for the highest economic good. It 
may pass through strange experiences, and take on many 
doubtful forms ; but it never, for a moment, escapes from 
the grasp of economic laws, and must, at the last, reach 
and rest upon true economic desert. 



BOOK Y. 
CONSUMPTION. 



CHAPTER I. 

DIVISIONS OF THE SUBJECT. 

There is a production, and there is a destruction, of wealth; 
but the latter is not the subject of scientific inquiry. Its 
phenomena may, at times, be prodigious, terrific ; its effects 
may be most baneful and grievous ; but there is no philoso- 
phy of it. It is all either unintelligent or malicious. Sci- 
ence is only of what is good, or may be made gopd ; and 
of what is amenable to laws, either of human direction or of 
human comprehension. The flood that drowns a thousand 
farms, the storm that whelms a fleet, the earthquake that 
shakes a city to the ground, are not so important to the 
eye of philosophy as the difference between yesterday's leaf 
and to-day's. 

It is not, therefore, with wealth, as disposed of in destruc- 
tion, but in consumption, that we have to speak. 

Consumption is the use of wealth. It is precisely the con- 
verse of production. If production were, on the one hand, 
the creation of an article, consumption would be its annihi- 
lation. But as human labor cannot bring one atom into 
existence, so neither can it return one to nothingness. 
Since man's efforts expend themselves in arranging matter 
into certain desirable forms, so man's satisfactions do, 
directly or indirectly, soon or late, exhaust those properties 

[380] 



CHAP. I.] DIVISIONS OF THE SUBJECT. t 381 

or peculiarities of form that have been imposed on matter ; 
and leave it, in the act and for the time, vacant of the ele- 
ments of value. This result is reached in the consumption 
of wealth. 

There can be no use of wealth, without this change of 
form ; while the merest change of form oftentimes answers 
all the conditions of consumption. This consumption may 
be for any purpose, — for luxury, wastefulness, or reproduc- 
tion ; may be within any time, — from the slow wear of the 
precious metals to a perishing that is almost simultaneous 
with the making ; may be in any degree, — from a total dis- 
appearance, as when wood is burned, to a change which the 
most practised eye can hardly detect. 

In the economical sense, iron ore is consumed when it is 
wrought into chains and bars. These, again, are consumed 
when they are arranged into a bridge, though each may still 
retain its single shape. And, when the bridge has been 
worn out in time, it is said to be consumed, though it still 
remains as an element in all articles which have received 
value by carriage over it. 

Each one of these changes is an act of consumption ; and 
at each the character of the change determines the new state, 
and the result, both in individual or national wealth. At 
each, there is an application to a new purpose, and a new 
economical direction is imposed. 

While the iron remained in bars, it was liable to be 
wrought into a bridge, as it was ; or into ploughs, for the 
tillage of the earth ; or into weapons, for the destruction of 
man. When it was directed to one of these, a new object 
was produced : it was consumed ; not annihilated, but 
changed in its form and purpose. It is evident that the 
effects on society and on industry would be vastly differ- 
ent, as one or the other of these directions should be taken. 
The bridge itself might be used for facilitating commerce, 
or for transporting armies ; and, in each case, the new appli- 
cation would be a consumption of the article, the new pro- 



382 CONSUMPTION. [b° ok v - 

duct and the new result in wealth being determined in the 
choice of uses to which it should be put. 

The seed is consumed when it is planted in the ground 
to bring forth one hundred-fold. The cigar is consumed 
when it goes off in smoke. 

Such consumption of wealth is constantly taking place in 
industrial society ; and in this light we see the great impor- 
tance of the principles which govern in this department : 
what momentous decisions are made at each change of the 
form imposed by labor on matter ; how the wealth of the 
world goes up or down, with the new direction given it. 
Although such consumption comes far more slowly in some 
instances than in others, and seems at times to be indefi- 
nitely delayed, yet it is true that wealth has its generations, 
like the race of man ; that, in so long a time, all the present 
accumulations of labor will have expended themselves ; and 
that upon the provision made for reproduction will depend 
the condition of the future. The world might be stpckcd 
full of useful and precious goods, yet become seedy in ten 
years, and beggarly within the life of man. And not only 
is the change of form and the new direction of vital impor- 
tance ; but it is made so frequently, in such multitudinous 
ways, often so silently and unobserved, always with so 
much of complication and uncertainty, that the principles 
which should control it have an interest at once, and a 
difficulty beyond those which belong to any other part of 
political economy. 

It would be impossible to give a catalogue of all the dis- 
tinct acts of consumption that take place in the narrowest 
field and in the shortest time. It might be even impossi- 
ble to decide distinctly when any one of them actually began 
or ended ; so that, if the science depended on determining 
them accurately, we should be forced to close our inquiries 
at once, as useless. No eye can detect their processes ; no 
thought can reach down to the real spring of economical 
life. But we can find in the general results, as they come 



CHAP. II.] MISTAKEN CONSUMPTION. 383 

out in national or individual experience, enough for practical 
instruction and guidance. 

We cannot see the grain grow, or fix its daily increments ; 
yet we know the fact of its growth, and can study the condi- 
tions of its best development. So we cannot mark the peri- 
ods of wealth, or note its phases ; yet in its great harvests 
we can see the kindness or unkindness of the soil, the re- 
freshing of the showers, or the parching of the drouth. 

To employ a figure : Exchange and distribution form the 
trunk of the tree, between the two branching worlds, above 
and below. Through that narrow compact body passes all 
that the intricate web of roots has to give, the product of 
their silent, humble work ; all that the interlacing limbs and 
boughs, more fortunate and conspicuous, have to spend. 
Below is the world of production, where myriad agencies 
appropriate and assimilate the properties of the soil. Above 
is the world of consumption, where is given off, in every 
variety of foliage and flower and fruit, of use and beauty, 
what has been long and patiently gathered. 

The consumption of wealth may be regarded as of four 
kinds, — mistaken, luxurious, public, and reproductive. We 
shall speak of them in that order. 



CHAPTER II. 

I. MISTAKEN CONSUMPTION. 

What shall we do with that large class of industrial ac- 
tions which bring no reward to those who perform them ? 

We find labor and capital applied with the purpose of 
reproduction, but without result. And this not occasionally ; 
but the share of failures can almost be determined with 
certainty, and is found to bear no inconsiderable proportion 
to business enterprise the world over. Indeed, in some 
occupations, entire success forms the exception. 



884 CONSUMPTION. [book v. 

These cases of mistaken industry would present very few 
questions but for the secondary uses to which we sometimes 
find them applied. Gibbon describes the towers, citadels, 
and palaces of Rome as built on the foundations of the 
ancient temples, theatres, and arches. We can draw a 
figure thence to our modern industry. The fortunes of one 
generation often rise from the failures of that which went 
before. If we trace the history of many of the most 
flourishing establishments, we shall find them resting at 
last on some great outlay of capital, or expenditure of labor, 
that ruined some man or corporation, and finally went to 
pay taxes or office rent. Such has been the fate of many 
of the railroads of the United States ; so much so, that it 
has passed into a proverb that such stock must be sunk once 
to pay at all. A railroad is established, starts with brilliant 
prospects, and, after a descending course for a few years, 
arrives at bankruptcy. Even so, when the stock can be had 
for nothing, it may not pay for running, and lies idle, or 
half run. But perhaps the industry of the country takes 
a sudden start, or pushes up gradually, finds the old track 
there, and demands that its goods be carried to market. 
The experiment is made ; and soon the road is worked to its 
utmost capacity, enriching holders, who had forgotten the 
existence of their stock. 

The same thing occurs frequently in the course of indi- 
vidual enterprises. Men undertake great matters, launch 
into immense expenses, and, after sinking the full amount 
of their capital and credit, stop hopelessly. The works 
stand idle and melancholy for years, till some new industry 
or some shrewder manager takes them at half cost or for 
nothing, and gets a fortune out of them. 

When one of the later emperors would build a monu- 
ment of his achievements, he was forced to use fragments 
of older architecture ; and so, history tells us, the head of 
Trajan frowned from the arch of Constantine. Many a 
modern fortune is pieced out of the wreck of earlier 
industry. 



CHAP. II.] MISTAKEN CONSUMPTION. 385 

This, of course, presents only the best view of such mis- 
taken investments. There are cases where industry, instead 
of coming back to re-animate the lifeless body by sudden 
movements, forsakes even the habitations it has delighted 
in ; and the machinery of to-day becomes old-fashioned 
and useless under the surprising inventions of to-morrow. 
Every locality has its " folly," named from some hapless 
adventurer, who undertook more than he could carry, and 
which has reached a death from which there is no resurrec- 
tion. Long lines of railroad stretch across the country, 
forsaken, apparently for ever, of passengers or freight. 
Mills and factories stand tenantless till they crumble. 
These only enumerate the gigantic failures of industry ; 
while the amount of labor and capital misapplied in ordi- 
nary ways is beyond computation. The three causes for 
these industrial misadventures are as follows : — 

1st, Capital is fallible in its calculations. Plausible 
schemes, based on views that are partial or temporary, draw 
even the ablest financiers into such investments. It would 
be out of reason that such errors should not be committed, 
even with the keen scent of personal advantage and trained 
observation. 

2d, Extravagance is, however, the prime cause of busi- 
ness failure. Men, in originating enterprises, sanguine in 
feeling, and exhilarated by the possession of large capital, 
almost invariably indulge in a scale of outlay which the 
return does not justify. They find it unpleasant or undig- 
nified to omit any thing from the completeness of preparation 
out of considerations of economy. The result is, that the 
expense of starting drags on them through the whole course, 
and perhaps ruins them. They are kept down all the time 
by the original outlay, and often have to vacate their 
magnificent establishments for the entrance of parties who, 
getting them at half price-, can afford to keep and work 
them. 

3d, Another reason is found in those accidents or great 

25 



386 CONSUMPTION. [book v. 

developments which transfer business from one seat to 
another, just as wells give out with no apparent cause. 
The axis of commerce shifts its place, and leaves tropical 
bones and tropical fruit high on the northern hills. 

What shall we do in our discussion with such invests 
ments of labor and capital ? Shall industry carry them on 
its books, like bad debts, in the hope that something may 
some time come of them ? Political economy here takes a 
lesson from the legislation by which obligations are out- 
lawed after a certain time, and declares that wealth, unpro- 
ductively applied, is not capital ; that it must be struck out 
of the account of the world's goods, to be reckoned either 
as loss or luxury. Whatever, from any cause, fails to rec- 
ompense its outlay, though it may still have some utility, 
is to be considered as so much added to the common 
agencies of society. If any thing comes out of it, this is to 
be counted as so much received from the gratuitous gifts of 
nature. Whoever, by shrewdness or chance, has possession 
of them, is fortunate. A canal or railroad, whose stock has 
been once sunk, stands in just the same relation to political 
economy as do rivers and natural causeways, which facili- 
tate travel, and render production easy, but are not capital, 
in the scientific sense of the term. 



CHAPTER III. 

II. LUXURIOUS CONSUMPTION. 

Luxury, — what is it, and what are its effects, economically 
considered ? Noah Webster defines it as " a free or 
extravagant indulgence in the pleasures of the table, as in 
rich wines and expensive diet, or delicious food and liquors; 
voluptuousness in the gratification of the appetites, or the 
free indulgence in costly dress and equipage." We must 



CHAP. III.] LUXURIOUS CONSUMPTION. 387 

give a far wider definition for our purposes, in the science 
of which we treat. A fine house is certainly as much a 
luxury as fine clothes or costly wines ; so are statuary and 
paintings ; so are a vast number of articles of common con- 
sumption in every condition of life. It is quite clear, too, 
that what would be esteemed a great extravagance in the 
royal establishment of Dahomey would be far otherwise in 
the humblest dwelling of Europe. The wigwam and the cot- 
tage exhibit very different phases of luxury. The loathsome 
poisons of " Gin Lane " are as truly luxuries, perhaps in the 
sense of Webster more so, than the "rich wines" and "deli- 
cious liquors " of the palace. Idleness is a cheap enjoy- 
ment in some spheres of life ; but many a seamstress's wealth 
cannot buy her the time to weep. 

" My tears must stop, for every drop 
Hinders needle and thread." 

It is apparent that a specific definition of the term " lux- 
ury " is impossible ; yet we can give a general formula that 
will be sufficient for our purpose. Luxury in the commu- 
nity is indulgence in those expenditures which are beyond 
the reach of the great mass of the people : luxury in the 
individual is indulgence in those expenditures which are 
beyond the strict necessities of maintenance, according to 
the customs of the social or economic class to which he 
belongs. It is not luxury for the ambassador of a nation 
to pay thousands of dollars for a great disagreeable state 
carriage, if the etiquette of court prescribes it : it is lux- 
ury for a laborer to pay five cents for a ride to his work, if 
he could as well walk. 

Of course, this standard will vary in different countries, 
the inhabitants of one being able to command many indul- 
gences which are denied to others. The luxuries of 
Europe are daily fare in Asia, while articles of common de- 
cency in an Irish hovel are unknown in the court of Delhi. 
Nor only this : the scale of luxury changes with every year. 



388 CONSUMPTION. [book v. 

Those articles which in one generation indicate wealth, 
become common property in the next. This results from 
the general progress of society and the constant advance of 
economic powers. As production rises, it covers the monu- 
ments of earlier taste or grandeur. 

The direction, too, of luxurious consumption varies with 
the culture and the aspiration of those able to indulge in it. 
In one circle, it will run to horses and hounds ; in another, 
to paintings and statuary : some will turn for enjoyment to 
architecture ; others, to dress and equipage ; more, still, 
to feasting and dissipation. 

The ground of luxurious consumption is, perhaps, best 
determined by the boundaries of its neighbors. It embraces 
nothing that is spent in the purpose of a reproduction, more 
or less immediate and direct. The necessary consumption 
of a people depends chiefly on absolute wants, is not greatly 
a matter of choice, fancy, or taste ; but its luxuries, those 
things which it may or may not have, depend entirely, for 
their kind and degree, upon moral and intellectual charac- 
teristics. Consequently, they furnish an index of the 
national civilization. 

1st, Do luxuries directly encourage industry ? 

We shall reach the truth of this by illustrations. When 
William IV. came to the throne of England, he erected a 
tower at one of the entrances of the palace where he made 
his residence. It cost $500,000. There was no pretence 
of utility whatever in the building. It was pure luxury. It 
was an elegant structure. It gratified the monarch's taste. 
It was highly ornamental to the castle and the grounds. 
What was the economical effect ? The erection gave em- 
ployment to mechanics and laborers ; it made a call for 
materials and architectural skill ; it made trade brisk in the 
neighborhood. Was it therefore beneficial ? Suppose it 
had accorded more with his majesty's views to take the 
same money, and with it erect two hundred cottages on the 
crown lands, at an expense of $2,500 each. This would 



CHAP. III.] LUXURIOUS CONSUMPTION. 389 

have called for as much labor and materials as the tower ; 
would have given as great an impetus to trade. At the 
same time, it would have brought into existence comfortable 
residences for the families of two hundred laborers. If the 
cottages were rented at a moderate rate, the income would 
be equal to a fair interest, and the dwellings would stand 
for generations, a valuable property, conferring happiness 
and comfort on a thousand people. 

But there is more to come. We said, " take the same 
money." What money? Whose money? Now, in argu- 
ments for govermental luxury, jt is always assumed that 
the money is in the treasury. But how came the money 
into the public coffers ? Who furnishes the money ? The 
sober, steady industries of 'the country. The money to 
make King William's tower came from Leeds and Shef- 
field and Manchester. It encouraged one class of artisans. 
True. Whom did it discourage ? A class that is always out 
of sight in such reckonings, — the class that pays the taxes. 

Then, so far, it only amounts to changing the capital of 
the country from one hand to another ; employing one class 
by turning off another ; a change that is never made with- 
out distress and loss. 

There is still more to be said. If the wealth had remained 
in the hands of the manufacturer, say, it would have been 
capital, and supported workmen this year. So has the 
tower. But, in the latter use, next year it will be no longer 
reproductive ; while, in cotton-spinning or land-draining, it 
would grow with every day, and furnish unfailing employ- 
ment for labor. A thousand dollars spent in luxury will 
pay a thousand dollars of wages (less certain little items). 
A thousand dollars employed as capital will, in ten years, pay 
twenty thousand dollars of wages. Such is the difference 
in results. 

A similar instance is that of a man expending ten thou- 
sand dollars on an enlargement of his house for purposes 
of grandeur or enjoyment, or laying it out in draining and 



390 CONSUMPTION. [book V. 

improving fifty acres of land. In either case, lie pays a cer- 
tain amount of wages ; but, in the latter, he has added a 
permanent value to the country ; increasing his own annual 
income, and affording the means of employing a certain 
amount of labor to the end of time. 

Wealth, employed as capital, is an annuity made out in 
the name of the laborer, and good for life. 

There is no possible case in which the employment of 
wealth, for purposes of luxury, as opposed to reproduction, 
can be said directly to advantage industry. It is only the 
fierce blaze of the burning house, at which a few may be for 
a moment warmed, but which goes out, leaving desolation 
where was habitation and home. 

2d, Do luxuries indirectly encourage industry ? Here we 
must turn sharply on our previous decision, and see a fur- 
ther meaning in luxurious consumption than first appeared. 
Unquestionably, a wholesome luxury is one of the most im- 
portant principles of production. What is it that kindles 
the desire of acquisition ; that keeps the hand strong to 
labor ? Is it not the hope to spend ? For what else, the 
wretched miser excepted, do men toil early and late ? It is 
the promise of future enjoyments that calls out half the work 
of the world. It is this that makes the difference between 
nations. No man passes by the abode of leisure and refine- 
ment without receiving an incitement to effort. 

There is one practical limitation of this principle, which is 
of great social and economical importance. It arises from 
the relative position of those who do, and those who as yet 
cannot, indulge in luxurious consumption. If a few are 
very rich, and the many very poor, the expenditures of the 
former have very little effect on the condition of the latter. 
Since these cannot aspire to the enjoyment of their superi- 
ors, their ambition, instead of being excited, is depressed. 
If, on the contrary, the interval between the classes is nar- 
row, and the differences moderate, the luxuries of the rich 
exert strong and increasing desires in those who are less 



CHAP. III.] LUXURIOUS CONSUMPTION. 391 

wealthy. These desires create wealth. It is not the gifts 
of nature, nor the constraints of law, that heap up the 
stores of value. It is the force with which man moves to 
production, wholly determined, as that is, by his economic 
desires. The luxury of European courts has no elevating 
influence upon the masses : quite otherwise. Robbed to fur- 
nish the means of others, they are hopeless of ever attain- 
ing to such fortune themselves. But where the grades of 
society are fixed only by differences of natural endowment, 
and so are moderate and regular, rising by easy steps, the 
entire population becomes inspired with the purpose of 
reaching a higher position. In such a state, the imagina- 
tion can hardly run ahead of wealth. 

We have, then, attained the principle, that luxurious con- 
sumption, while it directly gives no help to industry, but 
rather spends in one hour's enjoyment the provision of 
months or years, may yet, by its influence on man's desires, 
create a productive force which shall make its extravagance 
seem economy, its waste appear frugality itself. 

But this is only true of harmonious, temperate, and well- 
proportioned luxury. There are indulgences, great courses 
of indulgence, which, while they excite momentarily to pro- 
duction for the means of gratification, do yet, by their certain 
and inevitable effect on the physical and mental powers 
of the individual, by their demoralizing and perverting influ- 
ence on the community, prostrate industry, and overturn 
the foundations of the state. Many as are the unfortunate 
possibilities which attend upon production and distribution, 
they are all inferior in interest to the momentous decisions 
of consumption ; and here in luxury, as we find the spring 
of all beneficent activity, we also find the root of all eco- 
nomic evils. So vast and so important are the issues here 
involved, that many of them are taken away from the politi- 
cal economist by the statesman or the moralist. We do not 
propose to follow these principles into all their results ; con- 
tent with only indicating their starting-point and direction. 



392 CONSUMPTION. [book V, 

Such is luxurious consumption, in its definition and its 
general principles. We shall further discuss the degree to 
which it is, or may be, carried in any community. 



CHAPTER IV. 

ON THE DEGREE OF LUXURIOUS CONSUMPTION. 

We mistake, if we attribute luxuries to the rich alone. 
It is estimated, on the best authority, that of the taxes paid 
by the laboring poor of England, out of every twenty-one 
shillings, eleven shillings and fourpence were paid for what 
was, in the economic view, not necessary, and, in the 
sanitary view, not beneficial. If we estimate the amount 
expended for luxuries by the corresponding class in our 
own country, we shall find it as much greater as nature is 
more liberal, labor more free, taxes lighter, and the working- 
man more ambitious and sanguine ; while, if we turn to 
France, we find the proportion much smaller ; yet even 
here the laborer has his holiday, and his theatre or fair. 

Paradoxical as it may sound, it may be said that a 
certain amount of luxuries forms a part of the necessary 
wages of the laborer in these countries. Indeed, it is true 
of all countries ; for the human mind and the human body 
will have rest and recreation in some form. Man is not all 
laborer. Some indulgence is the demand of that part of 
his nature which looks out on another field than produc- 
tion and accumulation. And in this light we see the vast 
importance of such social and moral influences as shall 
determine the laboring classes to those relaxations and 
amusements which really refresh both mind and body, 
and elevate the whole tone of being. If we mistake not, 
a mighty industrial revolution, that promises effects more 
searching and permanent than many illustrious victories in 
arms, is now being accomplished by the divergence in taste 



CHAP. IV.] LUXURIOUS CONSUMPTION. 393 

and amusements of two nations. Great Britain has, thus 
far, maintained supremacy in useful and ponderous manu- 
factures ; while the artisans of France have been almost 
alone in the department of elegant and delicate fabrics. 
But the signs are clear that France is rapidly rising into 
superiority in the former class of industries, and may yet 
attain the primacy throughout the world. The French 
workman is so economical, not only in his personal habits, 
but, in handling materials and tools, has such generally 
correct and wholesome tastes, and is so simple in his wants, 
that his work is cheap as well as efficient. On the contrary, 
the English laborer seeks more and more the delusive relief 
of strong and impure liquors, and, by this, adds so much to 
his expenses, and takes so much from his power in produc- 
tion, as to place him at a real and increasing disadvantage. 
It hardly admits of question, that, if the present causes 
operate for twenty years to come, the close of that period 
will find the most mercurial and sensitive people of the 
world enjoying the supremacy of its weighty and useful 
manufactures. 

National taste determines, in a great measure, the de- 
mands of wages. It is only required, by our present ob- 
ject, that we take a good look at the luxuries of the poor ; 
not by any means grudgingly. Indeed, we may ask why 
laborers are not everywhere allowed more time and means 
for enjoyment, outside the dull routine of work and the dry 
subsistence of life. It is a wise and Christian statesman- 
ship that seeks to enlarge the simple pleasures of the poor. 
It is a capital charge against despotism in every form, that 
it breaks down the power of the humbler classes, to claim 
them. As the intelligence of laborers increases, and their 
political franchises extend, they will assert a larger share 
of the products of industry ; and very much of this will go 
into what we call, not invidiously, luxuries. 

But it is with regard to the richer classes that the ques- 
tion of luxuries becomes especially important. The amount 



394 CONSUMPTION. [book V. 

of wealth directed to these objects can hardly be over- 
estimated. 

The excise and customs authorities of Great Britain re- 
cently made an attempt to ascertain the shares of certain 
articles consumed, severally, by three classes into which 
they divided the population of the kingdom. The result is 
shown in the following table : * — 



Class. 


Persons. 


Tea consumed. 


Sugar consumed. 


1st, Upper . 


. 1,000,000 


17 \ per cent. 


22 1 per ceut. 


2d, Middle 


. 9,000,000 


38 


38 


3d, Lower . 


. 18,000,000 


44£ „ 


39^ „ 




28,000,000 


100 


100 



In these simple articles, which are almost included in 
the strict necessaries of life, we see the great excess of the 
expenditure of the upper classes. When we rise to take in 
services of plate and sets of jewelry, galleries of pictures 
and parks of deer, studs of horses and packs of hounds, we 
shall be impressed with the immensity of outlay devoted to 
the luxuries of society. 

We are not surprised to hear that at Rome " almost any 
profession, either liberal or mechanical, might be found 
in the household of an opulent senator ; " f that one 
thousand barbers, one thousand cooks, and one thousand 
cup-bearers were employed in the imperial service of Con- 
stantinople, while the chief cook had a retinue of twenty 
menials ; that the baggage of a Persian monarch was 
carried by twenty thousand camels, even in campaign ; that 
Zingis Khan maintained seven thousand huntsmen and 
seven thousand falconers ; that the revenue of two thousand 
villages supported the temple of Sournat ; that four cities 
were allowed for the personal expenses of the dogs of a 
royal establishment ; J that the household of Philip II. 

* Levi on Taxation. t Gibbon. 

\ The poodle of the Empress Livia seems to have been neglected. If the 
authorities may be accepted, it enjoyed the entire services of only one man. 
— Gibbon, oh. 49, n. 155. 



CHAP. IV.] LUXURIOUS CONSUMPTION. 395 

numbered one thousand five hundred, while the queen was 
attended by four physicians. 

Nor was the luxury of those times of barbarous might 
greater than that of to-day. An easy walk with any people, 
whether in city or country, will afford contrasts as striking 
and painful as that between the palaces of Susa and the 
corners into which the common people crept for sleep ; 
between the mansions on the Quirinal and the holes in 
which " Rome's rats " hid their wretched lives. 

1st, What are the causes that set wealth apart for 
luxury ? 

(«) The most essential is the existence of a surplus. 
Other things equal, the degree of luxury will be as the 
surplus. The latter, however, will depend not so much on 
the general mass of wealth as on its apportionment among 
producers. 

(6) The desire to gain and the desire to spend are 
antagonistic. They meet in every act of life, and one or 
the other must have its way. Luxury is the victory of the 
latter passion. The mere possession of a surplus is not 
enough. Some men remain eagerly devoted to gain, when 
their wealth is counted in millions : others retire, satisfied 
with the most moderate competency. The force of either 
motive will be greatly influenced, both by the security and 
the profitableness of investments. Every thing that renders 
business unsafe, makes withdrawal more desirable. On the 
other hand, every thing which raises the reward of capital, 
takes something from the zest of luxury. 

2d, To what extent can wealth be devoted to luxury ? 

Gibbon gives countenance to the theory, that no state 
can, without soon becoming exhausted, support more than a 
hundreth part of its population in arms and idleness. This 
is to be understood as a hundredth part of the population, 
taken out of the able-bodied males ; say, a twentieth part of 
these. The estimate is interesting, and has a certain share 
of truth ; but its form shows it to be a very rude one. 



806 



CONSUMPTION. 



| BOOB v. 



Does ii make no difference whether this portion ta simply 
unproductive or also destructive ? hoes it make no dif« 
ferenoc whether these idlers Are maintained In the dreamy} 
half-naked Indolence of Asiaties, or In the splendid luxury 
of courts? no diffbrenoe whether the general production of 
the oountry Is large or small; whether the wants of 1 1 10 
people and the necessities of government arc few ami 
simple, or many aud groat ; whetlier pioe enough For a year 
can bo had by the labor of two weeks, as in [udia, or a 
bushel of grain oosts the labor of eleven days, as In 
Lapland? The Athenian was content with liis figs ami 
philosophy : the cultivated Roman oraved the brains of 
blrds-of-paradise for his Pood, ami was positive lie wauled u 
palaoeon theQuirinal. Whioh maintained the larger share 
(>r its population In Idleness? When Froderiok the Great 
faood all Europe In arms, rye bread and potatoes, powder 

and lead, were all he Served his army, marshals ami 

drummers alike, By suoh parsimony, he was enabled to 

make Prussia wlial she was, "all slim;'." I'Yanee, with 

the perfection oi' her warlike equipment, and the fastidious 
taste of her eiii.ens, oould not maintain a proportionate 
number of troops, even under the oonsoriptions of the 

empire. 

h i. in (his light that \\c see the Impossibility of fixing) 

for all milieus, all elimates, .ill agOS, a eoiiiinon proportion 

of luxury that fan he maintained, without bringing down 
the standard of Industrial well being. At the same time, It 
is plain that for oaoh nation, at anj time, there must be a 

point beyond Whioh Wealth Cannot he spent in enjoyment, 

or nine m Idleness, without first oppressing the laboring 
olass i'\ hard exaotions, and afterwards debasing the entire 
state. 

We have already anticipated the remark, that idleness or 
leisure is a form o( luxury, a fbrm of luxury that, in 

either sense, la almost unknown, lo some peoples, whirled 
about, its they are, on the Untiring wheels of inaiiiilaelurn 



CHAP. IV.] LUXUKIOUS CONSUMPTION. 397 

and trade ; a form of luxury that, as idleness, is the most 
costly of all indulgences, that corrupts all manners, perverts 
all the offices of nature, wastes all the powers of labor, 
and has* its complete result in poverty, ignorance, and 
political servitude ; a form of luxury which, as leisure, 
adorns life, and makes it worth living, compacts the 
acquirements of study and toil, re-creates and refreshes 
the whole man, and leads upward to an eternal rest and 
felicity. 

OF LEAENING AND ART. 

These, in the economic view, may have value, and so may 
be produced, exchanged, distributed, and consumed. The 
reward they receive, the price they bring, is in no sense 
due to them in their own right, because they are true, 
beautiful, or good ; but arises legitimately out of the desires 
they gratify, and the labor they cost. It is the appreciation 
of a service rendered. That reward will vary in form and 
degree, at every state of society. The wandering Homer 
was content with the most simple hospitality. The modern 
man of letters has his rooms, his club, his carriage, his 
opera, paid for perhaps out of very mild criticisms on the 
blind bard of Greece. There is not a real scholar of 
the present day who would not work ten years in the mines, 
to hear Homer recite the parting of Hector and Andromache. 
So differently is the same service counted in different ages. 
Cicero, long before he reached the height of his fame, had 
received, by will, ,£170,000, as a tribute to his genius. The 
younger Pliny was loaded with wealth by his admirers. 
The laureate of England drinks to the royal bounty in 
royal wine. Blackstone's legal profits did not permit his 
marriage till his thirty-eighth year. A popular novel or 
sketch-book to-day earns a fortune. 

Thus it is that learning and art enter into wealth. While 
their rewards are uncertain, and apparently wayward, they 
have yet, from the mythic days, had a place with the most 



398 CONSUMPTION. [book v. 

substantial industries. Whatever may be true of the quality 
of such productions, the amount of labor bestowed on them 
obeys strictly the same laws of supply and demand which 
govern the growth of cotton or wheat. Economical science 
has no occasion to take them out of the same category. 
When one man gives his efforts to any work of this 
character, and finds one other who has a desire for it, that 
work begins to have value, comes hereby into the domain 
of political economy, and must submit to its principles. 
Milton, chaffering for the price of " Paradise Lost," forms 
no royal exception to the sovereignty of the empire he has 
entered. 

What is the character and effect of such consumption ? 
This is a question doubly interesting, having an importance 
to general scholarship, as well as to our immediate science. 
Of course, learning and art have not necessarily to establish 
an economic usefulness, in order to justify their pursuit. 
In their own names, they have sovereignty, and claim 
homage. But there is an economic relation which we 
cannot overlook, and which must affect, somewhat, the 
place which they shall be accorded in the world. In brief, 
their effect upon industry may be defined as follows : So far 
as they give dignity to human aspirations, furnish new 
objects to human desires, enlarge ambition, develop the 
useful sciences, and suggest the application of new powers, as 
the telegraph, the locomotive, and the magnet ; so far as they 
unite and harmonize social and political divisions, — they 
are of inestimable value ; and such consumption of wealth 
as rewards and encourages them is seed thrown into a soil 
more grateful than any land of fable or story. But so far 
as learning or art tend to produce that unmanly senti- 
mentalism which shrinks from dirty details, present duty, 
and simple fact ; that mawkish cosmopolitanism, moral or 
political indifference, which weakens each nationality, with- 
out promoting the union of all ; that softening of the 
mental fibre, that dissolution of the will, which makes man 



CHAP. IV.] LUXURIOUS CONSUMPTION. 399 

the slave of his circumstances, and even of his fellows ; 
and, worst of all, that selfish fastidiousness which shuts 
itself in from human activities and social alliances, to dwell 
in dreams and idle imaginations, whether of philosophy or 
art, — why, in so far, we must call such an employment of 
time and labor, not merely unprofitable, but mischievous, 
consumption. 

SUMPTUARY LAWS. 

No subject stands so peculiarly related to scientific 
inquiry as this. There is no scheme of governmental action 
which can present a more clear and convincing argument, 
drawn from the nature of things, and even from experience, 
prior to actual legislation ; while hone has been more 
effectually exploded by trial. There seems to be a perfect 
reason for sumptuary laws ; yet the general sense of 
civilization has, after full experiment, settled decisively 
against them. 

It is impossible to look about the smallest community, 
without being grieved at the manner in which much of its 
labor and wealth are expended. What enlightened person 
can pass once through any street of human habitation, 
without seeing very many instances of folly, extravagance, 
perversion, and indolence, which are wasting the best gifts 
of God and the fairest hopes of man ? And, when this 
view is carried out to all the communities of a nation, it is 
not strange that philosophers and statesmen have come to 
believe most earnestly, that by salutary curbs on expen- 
diture and spurs to exertion, by reforming dress, diet, 
equipage, and establishment, they could multiply mani- 
fold the comforts of the people, the resources of the state, 
and the means of social and moral culture. And why not? 
That there is no reason manifest in the nature of things is 
proved by the fact, that everywhere, and at all times, the 
most benevolent, temperate, and sagacious, alike of political 



400 CONSUMPTION. [BOOK V. 

rulers and of political writers, have agreed in recommending 
stringent sumptuary provision and inspection by Law. 

And yet nothing has more utterly and conclusively 
failed. II is not that the evil is imaginary ; for enough 
wealth and power are wasted to make every human being 
comfortable and happy. It is not that the state of things 
is unsusceptible of reformation ; tor the matter is one whol- 
ly of human choice, and Open to the control of the public 
sanctions, it is not that the aggregate sense of the com- 
munity, in matters of consumption (not of production), is 
not, on the whole, more enlightened and less fickle than that 
of individuals. We say, on the whole ; for there have been 
instances in which laws were even behind the instincts of 
the community, and proposed to compel the popular energies 
and tastes to less advantageous forms ol' consumption. As 

instances, we may cite the enactment in the reign of Charles 

II. of England, prescribing, under penalties, the interment 
of the dead in shrouds made of wool, lor the encourage- 
ment of that manufacture; the Spanish Cortes, petitioning 
in the same breath for the prohibition of coaches and 
encouragement of bull-fights ; and all of the recent legisla- 
tion of this country, in any form, which has taken for its 
principle the absurdity, that to issue bonds for expenses 
incurred in the work of destruction adds any tiling but 
weight to the national burdens, and can introduce aught 
but grievance and faction into our politics. Yet, as we said, 
the major will of the community would, on the whole, 
prescribe a more harmonious and healthful consumption of 
wealth than that which follows individual choices. Why, 
then, has law, acting to this end, failed of its purpose so 
universally and so manifestly, that such enactments are 
hardly ever proposed at the present day, even by the most 
sanguine of philanthropists? 

It is difficult to give a full and satisfactory explanation. 
One reason is, that such enactments are very easy of 
evasion. Expenditure is not a matter that submits readily 



CHAP. V.] PUBLIC CONSUMPTION. 401 

to inspection and proof. The interest of the producer and 
of the desire of the consumer are against the enforce- 
ment of the law. Then, again, luxury can take on so many 
forms, can slip so readily from the grasp of definitions 
and specifications, that the law becomes a greater trouble 
to its officers than to its offenders. 

But the grand reason is, that it is against human nature ; 
and with this we may fairly close our objections. 

But all these furnish no conclusion against the regulation 
of public morals and manners in things that affect the 
happiness and safety of the community. It is no longer 
legislation to supplement the wisdom of the individual or in- 
struct industry. It becomes the defence of the general good. 
It is not a breach of personal rights, but the safeguard of 
public liberty. If there is any habit or practice which 
brings disease and suffering and disorder, which abridges 
the power of labor and the span of life, which inflicts 
misery upon the innocent and unoffending, which entails 
expense upon the whole community for the charge of 
pauperism and the punishment of crime, there can be no 
doubt of the right and duty of the people to protect them- 
selves, through the power of their government, by the most 
severe and efficient laws that can be devised. To deny this 
is to deny the validity of government itself. 



CHAPTER Y. 

III. PUBLIC CONSUMPTION. 

There is an economical reason for government. Without 
the strong arm of the public force, men could not work 
unmolested, or retain the results of their labor. Without 
law, production would be hindered directly, by the confusion 
of society and the interruption of violence. But far more 

26 



402 CONSUMPTION. [book V. 

serious would be the secondary effects on industry. All 
motives to the accumulation of wealth would be withdrawn, 
by the insecurity of property. Its possession might even 
become an object of terror. 

We cannot, indeed, trace society back to anarchy ; for a 
state of anarchy is impossible with human nature. Even 
the savage tribes take on political forms. Like a drop 
whose cohesion is violently broken, the public body seeks 
to form itself anew, or at least to aggregate itself about two 
or three new centres. Absolute isolation is not merely 
impolitic : it is impracticable. But, as far as we can go back, 
on the path of social order, we find industry answering 
to law. 

To what share is government entitled in the general 
production ? If, as we have seen, it is the indispensable 
condition of all wealth, it can rightfully claim a part of all 
wealth ; and that part will be, at the least, enough to sustain 
itself in this economical function. It owns just as much 
of this wealth it has helped to create as is necessary to 
continue itself; for, without this, wealth could not be. The 
absolute necessities of government, then, afford the mini- 
mum measure of its share in wealth. 

Has government no right to more than what is essential 
to its support in this economical function ? Its industrial 
work embraces a wider field than appears in the simple 
statement. In America, education is required as a part of 
the public police ; and our eminent statesmen have estimated 
the outlay of schools and colleges cheap, in the results on 
order and security. In Great Britain, the church has been 
held to be a legitimate agent of the public force, and its 
maintenance is provided for out of the public purse. Gov- 
ernment may employ means of influence, numerous and 
remote, all in the interest of peace. 

But has it no right to property beyond this ? Plainly 
it has. We must not be as stringent in our scientific 
views as young Gobbo, and complain that " this making of 



CHAP. V.] PUBLIC CONSUMPTION. 403 

Christians will raise the price of pork." Political economy 
recognizes that humanity has other interests than wealth, 
and respects the claim of government to duties and services 
for the sake of a moral good. But such reasons should 
appear clearly. Nothing should be taken arbitrarily, or for 
contingent use. Man is the direct producer, and the product 
remains in his hands. If government, as indirectly engaged 
with him, enters with a claim to share the profits, it must 
show cause distinctly for whatever it takes. It is the part 
of the statesman, not of the economist, to judge of occasions 
like these. 

Having defined the right of government economically to 
participate in wealth, two considerations naturally precede 
the discussion of methods : — 

1st, Government should undertake nothing that can be 
left to individual enterprise. 

If we admit that the difficulties which surround industry 
are imposed for our good, and form a part of our discipline 
and culture, political society palpably acts on a false idea 
when it relieves the citizen of his own proper responsibil- 
ity, care, or labor, and assumes his natural duties. This, 
however, is not the only reason against such interference. 
Government never does the work of individuals as well as 
it can be done by individuals. 

It is related of Herodes Atticus, that, having come upon a 
great treasure concealed in the ground, he took it to Nerva, 
and pressed it on his acceptance, saying, " it was too con- 
siderable for a subject to use." — " Abuse it, then," replied 
the emperor. The anecdote has great significance as to the 
employment of wealth. Its abuse by the citizen is almost 
preferable to its use by the state. If government were 
conceived to be always wise, it would still be better, on the 
whole, that citizens should direct their own industrial mat- 
ters, wisely or unwisely, as might happen. But, when the 
liability of government to err is confessed, we have a double 
argument against taking the fee or use of wealth out of 



404 CONSUMPTION. [BOOK V. 

private hands. It cannot be too often or earnestly insisted 
on, that individual, interested supervision is the grandest 
economical condition, and should never be departed from 
till the work becomes too vast for single hands. 

2d, Government should do nothing for display. 

For ages the science of politics might be summed up in 
the word " pageantry." To dazzle the vulgar eye, and over- 
awe the common sense of the people, by splendid equipage 
and stately building, has been the main theory of rulers. 
The system certainly has not failed for want of trial. 
There have been governors who earnestly sought to prove, 
that the power of the law and the peace of the subject did 
not depend on show. The simplicity and austerity exhib- 
ited by Cams of Koine, Julian of Constantinople, Elizabeth 
of England, the Great Frederick of Prussia, and the Saracen 
caliphs in all ages, stand in marked contrast with the wicked 
and ruinous extravagance that has marked the administra- 
tion of most of the governments of the world. 

It is gratifying to believe, that, in some countries, the 
advance of economic principles has relieved the people 
of great burdens by limiting the display of government. 
Imagine the storm in Parliament, had it been proposed to 
buy the great Sanci diamond * for the British crown. Yet, 
two centuries ago, the heart of England would have craved 
it for the royal brow. 

3d, The expense of government will vary according to 
the circumstances and character of the people. 

Some peoples have a government as simple, primitive, and 
cheap as their clothing ; while others, no more highly civil- 
ized, manifest an inclination to complicated and refined 
forms of administering law, which bring a heavy burden of 
taxation on the present, and entail permanent debt on pos- 
terity. Some nations are obliged, by their position, to build 
themselves around with fortifications, and maintain extensive 
forces, just as some countries can keep out the ocean only 

* Disposed of at private sale in 1865. 



CHAP. V.] PUBLIC CONSUMPTION. 405 

by artificial dikes and levees ; others have a natural 
strength, or an isolation, that is good to them as strong 
armies. Some peoples can be governed readily in the plain- 
est manner by rulers who, like the caliphs, sweep their 
own floors, patch their own shoes, milk their cows, and live 
on soldier's fare ; others are supposed to require an im- 
mense amount of pageantry to dazzle the public eye, and 
occasional wars, wasting thousands of men and millions of 
money, to divert the common mind from troublesome ques- 
tions, and keep the peace at home. 

Russia spends yearly three dollars a head in governing 
her people and supporting her armies ; Prussia, five dollars ; 
the United States, up to 1860, two and a half dollars, reck- 
oning only the federal establishment ; Great Britain runs 
her expenditure up to ten dollars. Political economy has 
great charity for claims based on public considerations. 
It allows that whatever is really necessary for peace and 
order and property, in full view of the national peculiari- 
ties or geographical difficulties, is economically well spent 
and a good investment of capital. 

It is not alone the direct office of preventing immediate 
crime, and protecting present property, that government per- 
forms at so great cost. Civil law is an educator. It gives 
a prospect and a security for the future ; it multiplies the 
ambitions and the desires of all who live under it ; it ele- 
vates the self-respect and trains the self-control of all good 
citizens. 

Yet government charges heavily for what it does. The 
yearly revenue of the European states is, at present, very 
little, if any, short of fifteen hundred millions of dollars. 
The expenditure of the United States, even if no attempt 
is made to liquidate the public debt, will not, probably, be 
less than three hundred millions ; and this, exclusive of all 
the service of State and municipal government. 

On the whole, it may be said of this duty of capital to 
support government, that it pays, as an investment, what- 



406 CONSUMPTION. [book V. 

ever it may necessarily cost ; but that the expense should 
be strictly held down to the lowest practicable figure, 

DOES PUBLIC CONSUMPTION ENCOURAGE INDUSTRY ? 

We shall get the principles of such a discussion, in their 
bare form, by taking the extreme actual cases of this mode 
of consumption. 

There have been instances in which the people of cities, 
and even generally of States, have claimed work at the 
hands of government, to support life ; and we find that such 
provision has been at times really made. 

We will suppose the claim to be founded on absolute 
necessity, no work whatever being offered at private hands. 
The state, in compassion or from fear, employs the mass 
of its laborers on public works, and pays them from the 
public purse. 

What is the real condition of things ? It is one of two : — 

1st, If the work so performed is unnecessary, having 
been arranged solely to meet the popular emergency, this 
is merely a mode of government charity. So much is taken 
out of the resources of the state to maintain its indigent 
citizens. It comes finally as a tax on all productive indus- 
try. The classes that create values are called on to con- 
tribute, it may be largely and painfully, to feed and clothe 
those which do not. 

How does this answer the conditions of a successful 
charity ? 

(a) Such artificial industries require great expense be- 
yond the simple wages which the laborer receives from the 
national treasury. If these workmen were employed only 
in digging trenches to fill them up again, the additional 
cost would be only for tools to work with and land to work 
over. But government, in such cases, always maintains a 
certain semblance of purpose. There is a pretence of useful- 
ness, immediately or remotely. This generally calls for a 



CHAP. V.] PUBLIC CONSUMPTION. 407 

great amount of material, in one form or another, all of 
which makes a dead loss to the community, not even the poor 
getting it as charity. Such is the case where costly public 
buildings, or vessels of war, are constructed simply to pro- 
vide labor for the destitute. Often the expense to the state 
is many times greater than the sum which is divided among 
the suffering poor. There are, besides, the salaries of offi- 
cials, in great numbers, to superintend the labor ; no incon- 
siderable item in public industries. 

(6) We have, on the other hand, an advantage ; viz., that 
this mode of receiving charity saves the self-respect of the 
workman. If government adjusts the rate of wages intel- 
ligently, it is certain that none but those who really need 
employment will seek it ; and in receiving wages for work, 
even if that work is fictitious, they will not feel degraded. 
Of course, it is economically very desirable that the instinct 
of self-support should be kept strong and keen among the 
laboring class. 

(<?) There is also the consideration that these artificial 
enterprises entail a burden on the future. The work, when 
completed, is handed over to the public authorities, to be an 
object of costly maintenance, till happily destroyed by time 
or violence. In this way a tax is perpetuated on the com- 
munity for a relief that was perhaps of the most temporary 
character. 

2d, If the work to be performed is, in whole or in part, 
necessary or desirable, the pay of the laborer is so far taken 
out of the denomination of charity. He has rendered a real 
advantage, — it may be to. the full extent of the wages he 
receives. Neither government nor his fellow can question 
his right to the remuneration, or taunt him with pauperage. 
Still, supposing this mode of employment necessary, we 
have some important considerations presented. 

(a) Though the laborer renders the full value of his 
wages, the public often does not receive it. It is a perfectly 
established principle, that, in most departments of industry, 



408 CONSUMPTION. . [BOOK v. 

government cannot compete with Individuals. The dis- 
honesty and indifference oi' its agents need not be dwelt 
on here. It is a recognized maxim oi' business, thai self- 
interest and personal observation are the oonditions o\' 
that intelligence and economy which secures success. How 
entirely evident it is. that the public will seldom, it' ever, be 
fortunate enough to obtain officers who can. if (hoy would, 
manage its affairs as their own ! 

^/O There are times and eases in which this wholesale 
employment by government may be useful, even it* we allow 
the superior cheapness of individual work. There are 
great enterprises which can be undertaken only by the 
constituted authorities oi' the nation. There are duties, 
not only too Large tor private or corporate power, but too 
important to be left to the chances of individual manage- 
ment. Such, oi' course, is the maintenance oi' civil and 
military police, which, so far as it is necessary, must be in 
public hands, and cannot be let or farmed out. consistently 
with the honor and dignity oi' government. 

^c^) But these occasions for government io enter the 
held oi' industry are tew and definite. They cannot be 
exceeded without loss oi' wealth and demoralization of 
labor. Government should not only refrain from under- 
taking any work not necessary in its otcii interest) but 
should, as far as possible, let out what is necessary to com- 
petition and individual enterprise. Wherever the character 
oi' the operation is not such that its reliability concerns 
immediately the existence oi' the nation or the lives o( 
is. it should be left to the general industry. 

We have, thus far, discussed the employment oi' laborers 
by government, on the strict supposition oi' a necessity ex- 
isting at the time. We have seen that such a necessity 
might overrule economic laws, and justify governments in 
such a course : but we have also seen those evils, even 
in this case, which will save us any very extended con 
sidcration oi' the question, whether governments should, 



CHAP. V.] PUBLIC CONSUMPTION. 409 

without reference to an immediate distress among its 
people, enter the market of labor ; and, in the consumption 
of wealth, become a competitor with individual industry, 
even when the objects selected are wholesome and natural. 

(a) In a free people, and with fair laws of distribution, 
there will seldom be occasion for such employment by 
governments, except in its own interest. No able-bodied 
laborer can render to an official as much service as to an 
individual employer ; the reason being, that the former is 
not capable of receiving the service so perfectly. And it 
ought never to be true, that an able-bodied laborer is 
compelled to seek work at the hands of government. It 
will not happen, until wicked laws have deprived him of 
that employment, which, in a natural order of things, he 
obtains simply in virtue of his ability to achieve the satis- 
faction of human wants. 

(b) Such employment by government perpetuates de- 
pendence. It has been found strikingly true in the history 
of great experiments after this fashion. Men once accus- 
tomed to feed at the public board, whether as princes 
or day-laborers, are very loath to return to the primitive 
fare of private life. Relief from the stringent but neces- 
sary laws of competition becomes almost a second nature ; 
and few are found willing to break off from this reliance on 
government support. 

(c) Such employment by government demoralizes the 
general industry of the country. A false scale of prices is 
established, since government does not buy or sell under 
exactly the same motives as individuals. An unnatural 
competition is introduced into labor. The market is im- 
properly controlled by the immense resources of the 
administration : in consequence, all other branches of pro- 
duction are, to a greater or* less extent, disturbed and kept 
restless. 

(d) Such employment by government induces political 
corruption. It is not consistent with our purpose to enlarge 



410 CONSUMPTION. [BOOK V. 

upon this subject, but only to show its place. The fact is 
undeniable ; and while government must accept, as a neces- 
sity, a certain amount of improper influences attending its 
operations, this should be a potent argument against any 
assumption, on its part, of unnecessary work. 

A great part of the discussion of this question would 
more aptly come into the department of " Production ; " but 
it is so bound up with popular theories of government ex- 
penditures, as encouraging industry, that it is fairly brought 
within the present field of inquiry : and it is from the 
point now reached that we get the best view of that absurd 
doctrine which proclaims that national extravagance stimu- 
lates trade, and promotes the general welfare. 

We have seen, that any expenditure by government, even 
for necessary purposes, is made at a disadvantage to itself, 
and is attended by many marked inconveniences and mis- 
chiefs to society ; and that, so far as consistent, individual 
enterprise should be substituted. In how strong a light, 
then, do we see the folly of that scheme of national pros- 
perity which looks to lavish outlay by government for any 
purpose, whether productive or destructive, of luxury or 
war ! The share of some interested portion of the com- 
munity may be larger, or come more easily ; but the sum of 
wealth is diminished, and the healthful laws of distribution 
are disturbed. 

Yet, in the recent gigantic warlike operations of the 
United States, it was a daily experience to hear the accept- 
ed teachers of political philosophy • gravely pronounce the 
condition of the country to be most gratifying, loudly 
congratulating the public on the stimulus given to industry 
by the outlay of government. Trade was brisk, because the 
nation was running three thousand millions in debt, to be 
just so much poorer for centuries*. We do not question that 
the occasion justified the expense ; but this was none the 
less an unfortunate necessity, and the liveliness of business 
was the most melancholy feature of the national condition. 



CHAP. VI.] CHARITY AND POOR-LAWS. 411 



CHAPTER VI. 

CHARITY AND POOR-LAWS. 

In its broadest sense, half the world exists on charity ; 
and the amount of wealth so distributed, exceeds calcu- 
lation. 

Man comes into the world a helpless being. If left alone, 
he dies. He has not the faculties of self-defence and self- 
support that brute young possess. Years pass before he 
attains the power of maintaining his own existence. 

Even in the best states of society, woman is, to a great 
degree, rendered, by delicacy of constitution, incapable of 
self-support. At times, the fierce competitions of trade 
may be hushed when she comes among them ; yet she must 
always subsist somewhat by the sufferance of the fiercer 
and stronger sex. In the barbarous state, she is the tool and 
slave of man. 

Besides these large classes, the field of adult manhood is 
trenched upon by accidents of birth or circumstance, that 
render thousands incapable, physically or mentally, of earn- 
ing a livelihood. 

All these must live by charity. 

But in the sense of economy, in our modern civilized 
state, the field of this agency is greatly limited. The family 
relation adopts by far the greater part of all who are help- 
less to control their own condition. There have been peo- 
ples where children were the property of the state, and 
were reared at the public charge. There have been com- 
munities where women were had in common, and their 
maintenance was included in the budget of the treasurer. 
But the world has settled down to the family relation, and 
so we are to consider it. 

But there are yet melancholy outcasts from society, — 
aged folk and cripples and young children, — who have lost 



412 CONSUMPTION. [BOOK V. 

their staff and stay by the natural course of life, by the rav- 
ages of vice, by appalling accidents, or by the devastations 
of war. These form a great community, over which the 
state is called to watch with tender care ; a solemn trust, 
appealing to the holiest feelings of our nature. For these 
it has to provide, not food and shelter alone, but healing for 
their diseases, correction for their vices, help for their in- 
firmities of body and mind, instruction and useful arts, as 
far as they are capable of receiving them. 

Such are the natural constituents of this class ; but un- 
fortunately, by social obstructions and political oppression, 
we find, in some communities, thousands of able-bodied 
and hard-working men dragged down into the mire of 
beggary, compelled by wicked institutions to shameful 
want. 

There is hardly any social result so distressing as the 
reduction of the healthy workman to the low ground of 
charity. This, found in almost any degree in a political 
system, must be held to offset a great many splendid merits ; 
while freedom from such conditions must be accepted as 
satisfaction for many conspicuous defects. Legislators 
should ever consider the independence of the poor man as 
the visible " fulfilment of the law." It is a crying curse, 
that ever a stout man, glad to work, should be forced to 
beg. 

In the United States, the question of charities has not 
that engrossing interest which it commands in the older 
peoples of the world. Land here is so cheap, labor so much 
in demand, that no able-bodied man has any excuse for 
pauperism. And even a large share of those disabled 
by severe accidents are yet competent to earn something 
for livelihood, in a country where every hand is wanted for 
work. It is probable, that the pauperage of the nation is 
not, in ordinary times, equal to one-half of one per cent of 
its population ; while England and Wales had, in 1859, four 
and a half per cent; Holland, in 1855, eight and a half; 



CHAP. VI.] CHAEITY AND POOR-LAWS. 413 

Belgium, in 1846, sixteen ; East and West Flanders rising 
that year to thirty per cent. 

The methods of charity have not, therefore, the same 
importance with us which they bear elsewhere. It is a 
matter of profound concern with others, that pauperism 
should be in every way discouraged, and that what of it 
is necessary should be as cheaply arranged as possible. 
Here, the only occasion for anxiety is, lest some unfortu- 
nate should be overlooked in the general prosperity of the 
country. It will not, however, be without interest and in- 
struction to regard carefully the practical principles which 
should govern the administration of charity. 

1st, What classes are entitled to charity ? 

Manifestly all who are unable to subsist in human de- 
cency without it. 

But should government provide nothing for those who, 
having wantonly wasted their means and gifts of labor, find 
themselves, and those dependent on them, suffering for the 
necessaries of life? We answer, that the liberty of the 
subject is not a privilege to become a pauper ; that gov- 
ernment has the right to protect itself; that it may, by 
stringent enactments concerning vagrancy and indolence, 
anticipate the operation of such causes ; that it may en- 
courage industry by rewards, or compel it by pains and 
penalties ; that it may apply to vicious pauperism the same 
severity as to crime. Yet, when all this is granted, and 
all this done, there will still remain a certain degree of 
physical want, the result of sinful and slothful habits. 
Of this the state must have charge. No man may be al- 
lowed to starve, however clearly his destitution may be 
the effect of his own folly or wickedness. "It is better," 
said the Eoman law, " that vagabonds should die of hun- 
ger, than that they should be supported in their beggary." 
In the light of Christianity, we have a wider view of politi- 
cal duties. The sharpest incitement to labor, the sternest 
punishment of vice, is equally just to society and kind to 



414 CONSUMPTION. [BOOK V. 

the subject ; but that the vilest outcast should perish of 
hunger by the actual permission of government, would 
eclipse the brightest glories of conquest or commerce which 
a Christian nation can acquire. 

Here we have an important practical precept concerning 
governmental or individual charity; viz., the frequent and 
careful revision of claims to assistance. There should be 
no prescription in beggary, nor any thing taken for granted. 
The inability of self-support should be distinctly proved, or 
the applicant forced to work. 

2d, Who should administer charity ? 

An argument might be made from the principle of benev- 
olence and the sensibility to another's distress found in the 
constitution of our nature, that charity was not alone de- 
signed for government, but that the relief of the poor is appro- 
priate to private hands. And there is a plain, economical 
reason, in that such contributions can be made more timely, 
more judiciously, and more cheaply, by the offices of indi- 
viduals than by public agencies. There is a further reason, 
not less economical than moral, that assistance rendered 
in this form does less hurt to the feelings of the recipient. 
The interests of production, not less than the law of kind- 
ness, object to the unnecessary lowering of the self-respect 
of any class or person. To accept charity from a neigh- 
bor, under the pressure of extraordinary misfortune, could 
impeach the honor of no one ; but to take bread from gov- 
ernment carries with it a sort of taint of beggary through life. 

But this does not in the least excuse mendicancy, whose 
principle is directly opposed to that of intelligent, equable 
charity. It is prohibited, under severe penalties, in almost 
all communities, though the sympathy of the solicited and 
the condition of the solicitor take much from the terrors of 
the law. 

Here, then, in individual contributions, we have one of 
the main instruments by which the relief of the poor should 
be effected. 



CHAP. VI.] CHARITY AND POOR-LAWS. 415 

There is another class of voluntary agencies, standing 
between individual charity and that of the state, consisting 
of mutual-relief societies and trade associations, established 
for the purpose of assisting their members over the rough 
places of life. When honestly formed, and held to their 
legitimate work, they have, economically, all the advantages 
of division of labor. With this they unite a considerable 
share of intelligence, as to the special deserts of applicants. 
There is also, and principally, the consideration, that relief 
from this source is thought to have nothing degrading, 
and so preserves the self-respect of those who receive the 
aid. 

This agency is very extensive in all the countries of 
Europe, and in all the States of America. By the most 
recent statistics available, the voluntary associated charities 
of London alone include the efforts of four hundred and 
eighty-six institutions, with the annual expenditure of 
£1,222,529, while the mutual-relief societies of France 
number 4,125, with a membership of 535,233, which, with 
four persons to a family, would give a sphere of activity 
embracing more than two millions of people. 

Prominent, too, in this view, we see the noble, economical, 
and Christian scheme by which the great body of Quakers, 
or Friends, throughout the world, assume the care and 
support of all the infirm or helpless of their order ; so that 
no one can come upon the colder charities and harsher dis- 
cipline of public maintenance. 

Yet all these methods cannot be relied on, by themselves, 
for all times and at all places. The state should assume 
the responsibility and control of the poor everywhere. It is 
a part of the national concerns that no subject shall suffer 
from want. After all that individual and associated charity 
can do, there will be an immense amount of the most 
repulsive and unromantic want and misery awaiting remedy 
by government. 



416 CONSUMPTION. [BOOK V. 

3d, By what branches of the government should public 
charity be administered ? 

We answer, that, in the mere relief of poverty, local 
authorities be charged with the dispensation, though the 
state may, and indeed should, compel them to do it, and 
perhaps regulate the degree and manner of it. Wherever 
a pauper has his residence, there he should receive what- 
ever assistance he is to have. More work can be got out of 
him, his character and claims will be better understood, he 
will be nearer to returning into the condition of self-support, 
and each community will have an active interest to diminish 
its pauperage. All this is additional to the greater expense 
of monster workhouses, and the corruption they are sure to 
breed. 

We said, " in the mere relief of poverty." But govern- 
ment charity has to do with other classes with which the 
rule of assistance is directly opposite. Hospitals for the 
disabled, asylums for the insane, schools for the blind, — 
these should be aggregated to secure the best scientific treat- 
ment and the greatest natural advantages. 

4th, To what extent should charity be given ? 

To the full extent of the necessities of the subject. The 
destitute, whether maintained in their own homes or in 
houses devoted to that purpose, should be required to do all 
the work they are really able. This is just ; for the govern- 
ment has the right to diminish its own burden. It is kind ; 
because, by keeping up their habits of industry, it preserves 
self-respect and bodily vigor, and may in time enable them 
to return to a condition of self-support. To render any 
more assistance than is really necessary, is not to relieve 
pauperism, but to create it. 

The English system includes two methods : 1st, The 
allotment, which is the cheap rental to the poor of certain 
portions of land, from which, by their own industry, to 
procure some of the necessaries of life ; 2d, The parish 
allowance, which affords weekly assistance to a certain 



CHAP. VI.] CHARITY AND POOR-LAWS. 417 

amount, — say, two shillings, — to eke out wages. These, in 
some circumstances, may give a real and permanent relief ; 
but it is found in England, that this kind of charity is so 
general, that employers reduce wages still further, in expec- 
tation of it, and the laborer is soon brought to distress 
again. Such a state of things is a misfortune, arising, not 
from defects in the system of charity, but jointly from the 
want of independence and intelligence in the laboring class, 
and from the operation of vicious institutions, which lock 
up the natural means of subsistence, or take them away in 
excessive taxes. 

It is in this failure — acknowledged equally by govern- 
ment and by scientific writers — of the English charitable 
system, under which one million families have been kept 
in substantial pauperism, while there was found at least 
another million "just above the paupers, always in peril, 
lest they should become paupers," * — it is here we reach the 
true principle of this matter of public charity. 

Poor-laws may be effective, to the full extent, in provid- 
ing for all pauperism that results from natural or accidental 
disability of body or mind for self-support. Government' 
may relieve every form of such distress with entire satisfac- 
tion of the individual need, and with perfect justice to the 
community. But, as soon as the necessities of a people 
bring able-bodied workmen within the scope of poor-laws, it 
is certain that, while temporary relief should be afforded, 
the remedy must be sought elsewhere. The reason is as 
follows : Charity to the disabled is simple gratuity, wholly 
outside the laws of value, and involving a definite expense ; 
but charity to the laboring class is an absurdity, only 
explained by the wickedness of human institutions. It is 
an absurdity liable to indefinite repetition. It indicates 
that the point has been reached below which oppression and 
greed cannot go. The Creator of this bountiful order has 
made provision for the support, the comfort, and the 

* John Bright, 1865. 
27 



418 CONSUMPTION. [BOOK V. 

gratification of all our kind. Poor-laws, permanently 
embracing in their charity able-bodied workmen, simply 
show that the gratification was long since abandoned ; that 
comfort was afterwards denied by oppressive requirements 
or restrictions ; and that now the lowest plane of injustice 
has been reached, in the inability of the laborer for self- 
support. There is no further descent ; nor have poor-laws 
any virtue to bring back the right order of things. The 
great, the sole, regulating principle of economical life, 
viz. the entire self-sufficiency of labor, has been destroyed ; 
and nothing but laws returning labor to its own full rights, 
not affording it charity, can restore health and harmony. 
There is no proper ground for charity but the inability to 
labor ; and, when under the stress of government injustice 
and social falsehood, it departs from these limits, it begins 
a wandering that has no end. The pauperism of America 
is the result of accidents, and expires with its special 
causes. The pauperism of Europe is the effect of system, 
and perpetuates itself. 

England will retain her million of pauper families ; her 
other million of families, suspended over pauperism by a 
cotton thread ; her three millions more, scantily subsisted 
and nourished, — until the axe is laid by giant hands at the 
root of the evil. 

' The quackery of the Middle Ages applied herbs and 
balms, not- to the bleeding wound, but to the injurious 
sword. Such are poor-laws for pauper populations. It is 
not poor-laws, but rich-laws, that are needed. The rela- 
tions of capital to labor, of government to the people, of the 
soil to the hand, need to be re-adjusted. 

5th, In what form should charity be administered ? 

In deciding this question, we shall find it convenient to 
distinguish between two classes of recipients ; viz., perma- 
nent paupers and those occasionally destitute. Of the 
former class we need hardly more than refer to the alterna- 
tives of in-door or out-door, mechanical or agricultural 



CHAP. VI.] CHARITY AND POOR-LAWS. 419 

employment, of home-relief or poor-house maintenance. 
The habits and circumstances of each community must 
determine the methods of its charity. This class, being in 
the main composed of those hopelessly dependent, does not 
present such perplexing questions as arise, when, by national 
calamities or natural causes, great bodies of helpful indus- 
try are deprived of support. The famine of 1693 reduced 
twenty-five thousand in Paris alone to a starving condition, 
and for a while overwhelmed the laws relating to mendi- 
cancy. The great number of persons now dependent on 
government support,* throughout the Southern section of 
the United States, strikingly illustrate that class of calami- 
ties which may reduce a population almost to general 
beggary. These, when they come, must be promptly and 
amply provided for: labor must be saved at all expense, 
humanity out of the question. 

(1) Such charity must not be administered in connection 
with stated pauperism, or in public institutions. 

(2) This is the best field for individual benevolence, 
unless the prostration of business is so universal that 
nothing but the credit and authority of the government can 
intervene. 

(3) Government may, by foreign loans or other means, 
remit the pressure of ordinary taxation. 

(4) Government may appropriate the necessaries of life 
for the public good, if the emergency is as great as would 
justify the same invasion of property in war ; not otherwise, 
not merely to save expense or extinguish speculation. 

(5) Government may very properly employ its marine 
and its finance in furnishing subsistence promptly, at low 
rates, and on easy terms. 

(6) Government may, in exceptional cases, offer employ- 
ment on works of public concern. This should be done at 
least to the extent of such enterprises as are in themselves 
desirable and profitable. The time of general distress is 

* Winter of 1866-6. 



420 CONSUMPTION. [book V. 

the only time in which government can largely enter the 
field of industry without working a considerable share of 
disturbance and mischief. All works of manifest utility 
should be undertaken at such a time. This will cost less, 
and be a mighty kindness to the suffering poor. Govern- 
ments have often .proceeded much further than this, have 
undertaken works that involved a far greater expense to 
itself than relief to labor, and entailed a permanent burden 
on the country. This was done in Ireland during the great 
famine, and has more than once been done in France. The 
policy of such employment is very doubtful ; for, — 

(7) Government should administer its charity to the 
necessary amount by direct personal assistance, generally 
of supplies in kind, through its own local agencies. The 
degradation of accepting relief is, in such cases, removed 
by the universality of the distress. It is the most appro- 
priate and least costly remedy. For example : it is not a 
matter of question, that the assistance which the United 
States furnished during the Irish famine, in its cargoes of 
provisions and clothing, was more sensible and effective, in 
proportion to the expense, than the outlay of the British 
Government on useless roads. 

But the occasions for such extraordinary charity are few. 
The greater the freedom of intercourse, the wider the 
ramifications of trade, the quicker the sympathies of indus- 
try, the less frequent and the less destructive will be all 
local and temporary calamities. In the present winter, 
when, by the unusual severity of war, hundreds of thou- 
sands of families have been thrown on the public support, 
government, both State and national, has adopted, without 
hesitation and without discussion, the most simple, eco- 
nomical, and beneficial method of relief. There has been no 
loud outcry for grand public works. No useless costly piles 
will remain as tokens of this hard winter, and burdens to 
every succeeding year. The hungry mouths have fed off 
the hand of government, open now in charity, as lately 
clenched in wrath. 



CHAP. VI.] CHARITY AND POOR-LAWS. 421 

6th, In what spirit should charity be administered ? 

In that of kindness and respect. No condition of life 
and character is so abandoned that it needs or deserves 
that marks of ignominy should be attached. When the 
murderer, with his bloody hands, is to be executed, the sen- 
timent of the community shrinks from the idea of adding 
insult to his doom. He is treated among no magnanimous 
people with contumely or outrage. If his manhood is 
respected, even in his crime, should not those who are the 
victims of misfortune, or at the worst of only passive vices, 
be free from more than the disgrace which is necessary to 
their condition ? It' is unchristian, it is cowardly, to insult 
by word or badge the unfortunates of society. No true 
man will do it : no brave people will allow it to be done. 
The followers of Mahomet would not suffer a tattered bit of 
paper to blow by them or remain on the ground, but would 
reverently pick it up, lest it should contain some fragment 
of Alcoran. There is no broken piece of humanity in the 
mire of poverty and crime on which the proudest of earth 
can place his foot, and not crush God's image. Tenderly, 
reverently, should we bear ourselves to all ; but to none more 
kindly, more ourselves rebuked, than to the forlorn and 
helpless. 

Yet there should be no weakness or paltering in charity. 
While all harshness and contumely are avoided, public 
maintenance should never be made desirable to the able- 
bodied workman, nor should even the feeble be allowed to 
escape just so much of labor as their condition permits. 
This is justice to the community, and kindness to the 
unfortunate. Especially should the public sense discourage 
and banish that shameless and obtrusive mendicancy by 
which the bold and bad snatch away the portion of the 
weak, the honest, the retiring poor. The truly helpless 
and suffering should be sheltered under the wings of 
charity ; the indolent and wasteful, driven out into the 
storms of the world. 



422 CONSUMPTION. [book v. 



CHAPTER TIL 

I. THE FINANCE OP "WAR. 

The finance of war is greatly perplexed to the popular mind 
by one fallacy, which is, that a vastly greater amount of 
money is needed in time of war than of peace. Bewildered 
by this notion, than which none can be more absurd, the 
public are easily induced to sanction a whole class of 
measures that would be generally recognized as injurious in 
ordinary times, but are imagined to have some virtue to 
bring out a greater amount of money to meet the supposed 
emergencies of war. The truth of it is, if we suppose no 
extra importation of foreign material for consumption (and 
nineteen-twentieths of the expenditures of all wars are for 
domestic labor and material), there is no larger production, 
no more commodities to be exchanged, no more services to 
be rewarded, and consequently.no more occasion for the use 
of money. 

But government now becomes the great operator, employs 
perhaps ten times its usual number of agents, expends ten 
times its usual resources. It then has need of more 
money : but as it only takes the place of former employers, 
of former consumers, so it only needs to take their place in 
the receipt of money ; and that may be effected by prompt, 
equal, and thorough taxation, — taxation, too, conducted by 
the established methods, and in accordance with such prin- 
ciples as we have laid down. A state of war, therefore, 
instead of being, as it is usually made, a reason for depart- 
ing from the ordinary rules of public economy, is an 
additional reason for adhering closely to them in every 
particular. 

War is a business as much as agriculture. The same 
resources are necessary: there must be materials, provision, 



CHAP. VII.] THE FINANCE OF "WAE. 423 

tools, labor. This is all that is needed in either ; nor is 
there the least difference in the two, considered as modes of 
production : their principles and methods are the same. It 
is only when considered as modes of consumption that they 
have separate relations to the science of wealth. " Raising 
money " has been generally accepted as the great business 
of a nation in war ; but it is no more so than in ordinary 
times. What is wanted is labor, tools, provision, and ma- 
terials : that is what is to be "raised." And at least an 
equal amount, though of different kinds and for different 
purposes, is " raised " every year or day of peace. Govern- 
ment, however, is now the great employer ; and, as it is to 
furnish these, it must get them from the community which 
has them, and has been operating them. This, as we said, 
requires taxation, but needs no financial jugglery, as is 
supposed ; and involves no departure from ordinary prin- 
ciples. 

Indeed, war might be carried on without money ; has been, 
to a great extent. The public force might always, as it 
often has, fill its armies by conscription ; its granaries, by a 
tax in kind ; its arsenals, by compulsory labor. The greatest 
armies the world has ever seen were raised, supported, and 
disbanded without a money chest. In the advance of 
civilization, it has been found more expedient, as it is more 
just, that government should purchase all it consumes in 
war, obtaining the means in money by taxation. But, as 
war does not increase the number of laborers or augment 
their power in production, it remains true that there can be 
no greater occasion for the employment of money, whose 
only office is to exchange the products of labor. 

But it may appear, that, if foreign labor (as mercenary 
soldiers) or foreign material (the products of foreign labor) 
is introduced, there will be a greater demand for money to 
make the exchanges of services and values. Of the first, it 
may be said, that the employment of mercenaries is, in fact, 
too small to be of any account in tne great calculations of 



424 CONSUMPTION. [book v. 

warlike expenditures. The latter is of importance, but 
really forms a small fraction of the actual outlays of war, 
probably not equal to the reduced wages of domestic labor 
in arms, as against the same labor in peace ; it being true 
of almost all armies, that their pay is below the average of 
industrial occupations. But, if we allow all the actual 
importation of foreign material to be so much added to the 
necessity for money, the effect will be simply what has been 
already indicated in the philosophy of currency. Money 
will be exported up to a certain point to pay for imports : 
this will lower home prices, diminishing the domestic ex- 
penditures of government, and encouraging the export of 
produce, which will continually tend to restore the balance. 
Beyond the point at which money cannot be sent off, with- 
out domestic distress, government must resort to credit by 
loans. Such loans, however, cannot increase the money in 
the country ; for, even if they first assume that form abroad, 
they are turned into material before imported.f 

This discussion, it should be borne in mind, has only 
regarded the amount of money required in war.* We have 
had nothing directly to say as to the amount of capital 
employed. Of this we express no opinion ; while we main- 
tain that it is unquestionably true, that no greater volume 
of money is needed to effect all the exchanges incident to a 
state of war. 

* For an able discussion of the subject in all its bearings, see " A Critical 
Examination of our Financial Policy," by Simon Newcomb. D. Apple- 
ton & Co., New York. 1865. 

t The foregoing argument is based on the assumption that the currency is 
sound at the commencement of the war, and a nation thus prepared for war. 



CHAP. VIII.] ECONOMY OF THE WAR SYSTEM. 425 

CHAPTER VIII. 

ECONOMY OP THE WAR SYSTEM. 

War is the greatest fact that presents itself in this part 
of our general subject. Its consumption, its expenditures, 
are wholly for unproductive purposes, and not only unpro- 
ductive, but absolutely destructive of those by whose labor 
wealth is produced. War demands by far the largest part 
of all the revenues of civilized governments throughout the 
world. It therefore claims consideration as far as our limits 
will permit. 

That war is a political necessity while no preparation is 
made for preserving peace, cannot for a moment be denied. 
So also were private combats and the wager of battle in by- 
gone ages. Disputes will ensue between nations as between 
individuals ; and, if no provision is made for umpirage or 
arbitration, a resort to the sword is inevitable. Hence the 
great system of war. But for established laws and courts 
of justice, individuals would, of necessity, be compelled to 
seek redress for private grievances by an appeal to brute 
force. This would not, indeed, determine which of the parties 
were in the right, only which was the stronger or more fortu- 
nate in the struggle. So of nations. When differences arise 
between them, how can they be settled except by a trial of 
strength? There is no well-defined, well-established code 
of international law ; there is no tribunal of international 
justice : how then, except in battle, can their disputes be 
adjusted? It is a well-established principle, that a man 
should not be a judge in his own case ; and therefore, as 
between individuals, it is decided, that, instead of the wager 
of battle, the aggrieved party shall submit his case to the 
arbitrament of his fellow-citizens. But, as between nations, 
no such arrangement has as yet been made. 

Hence we are to contemplate war as a political neces- 



426 CONSUMPTION, [book v. 

sity, until the nations of the earth shall establish a code of 
international law, and institute a high court of appeal, to 
which their disputes shall be referred for adjudication. 

War, then, in the sense in which we are to look at it, is 
not an accidental fact, but an established system ; and, as an 
economical question, is to be regarded from three different 
points of view. 

1st, As consisting of a permanent military force, a stand- 
ing army, with all the paraphernalia of war ; and, if the 
nation be maritime in its position, a naval force, somewhat 
proportioned to its military establishment. 

2d, A system of constantly increasing preparations for 
war, — arsenals, dockyards, and manufactories. 

3d, A heavy indebtedness for wars of the past, with un- 
ceasing taxation for the payment of accruing interest and 
the extension and perpetuation of the system. 

These three items may be said to constitute the war sys- 
tem of the civilized world at the present day. Looking at 
war in its economical bearings only, the great feature that 
presents itself is the immense and constantly increasing 
expenditures it requires. 

In proof of this, we first refer to the statistics of Great 
Britain, not because they are peculiar, but that they are full 
and reliable. Her naval and military expenditures from 1815 
to 1865, during which period of fifty years there has been 
no protracted war, have been ,£1,084,330,507, equal to 
$5,000,000,000, or nearly twice as much as the whole present 
debt of the United States : from 1855 to 1865 inclusive, 
£769,612,936, of which ,£301,618,920 were required to pay 
interest on the national debt; £331,887,258 for current 
expenses of army and navy ; for the cost of collection, 
£48,733,823 (or about six per cent of the whole reve- 
nue) ; and only £105,472,935 for all the expenses of civil 
government. So that, in paying interest upon the debt 
wholly created in war and in meeting present expenses, the 
war system swallowed up six sevenths of the entire revenue. 



CHAP. VIII.] ECONOMY OF THE WAR SYSTEM. 



427 



The "Annuaire Encyclop^dique " has the following state- 
ment of the armies of Europe for 1863 : — 



Russia . . . 
France . . . 
Austria . . . 
Turkey . . . 
Italy .... 
Great Britain . 
Prussia . . . 
Spain . 
Sweden . . . 
Holland . . . 
Denmark . . 
Belgium . . . 
Romania . . 
Norway . . . 
Greece . . . 
Roman States . 
Servia . . . 
Switzerland . 



* Total 



Army. 



1,000,285 

513,349 

467,211 

429,000 

314,285 

300,323 

214,482 

120,000 

67,867 

59,431 

50,000 

40,115 

20,000 

18,157 

10,291 

8,845 

2,500 



3,815,217 



Population. 



64,000,000 

37,500,000 

35,019,058 

39,000,000 

21,920,269 

29,193,319 

18,500,446 

15,500,000 

2,855,883 

3,569,486 

2,605,024 

4,671,183 

4,000,000 

1,433,764 

1,096,000 

684,306 

985,000 



299,494,195 



$105.29 
268.18 
144.00 

76.00 
209.79 
446.18 
147.60 
209.20 

50.39 
158.18 

71.37 
160.29 
118.00 

93.00 

99.60 
100.00 

71.39 



$168.87 



64 

73 

75 

91 

70 

97 

86 

129 

56 

60 

105 

117 

200 

79 

100 

77 

344 



77 



$105,848,000 

137,729,075 

67,310,840 

30,000,000 

65,934,225 

135,485,875 

31,346,730 

25,132,370 

3,417,320 

9,381,580 

3,507,729 

6,450,525 

2,360,000 

1,689,540 

1,084,500 

886,965 

178,880 



$644,283,888* 



But this sum of 1644,283,880 is but a part of the cost. 
If we take the loss to production to be equal to $150 for 
each soldier (a low estimate), we shall find the additional 
amount to be five hundred and seventy-two millions of dol- 
lars per annum. 

The following statistics from the muster-roll of the 
British army show its entire strength and composition : — 



Regular troops . . . 
Local and colonial . . 
Foreign and colonial . 
Indian military police 
Depot establishments 
Militia 



218,971 
18,249 

218,043 
79,284 
28,141 
45,000 



Pensioners 14,768 

Yeomamy . 16,080 

Irish constabulary 12,392 

Volunteers 170,000 

Total number of men . . 820,928 



If from this total amount we deduct about 270,000 for the 
constabulary, the militia, volunteers, &c, we have 550,000 
men, as the non-productive force required by the war 
establishment of Great Britain. 

* The Report of the Secretary of the United-States Treasury for 1863 
showed, that there was expended for the army $747,359,828, and for the 
navy $82,177,510; total, $829,532,838, or about thirty-three per cent more 
than all the war expenditures of Europe for that year. 



428 CONSUMPTION. [book v. 

The following is a statement of the national debt of each 
of the nations mentioned : — 

Great Britain (1862) £ 800,000,000, equal to $4,000,000,000 

France (1865) Francs, 11,902,000,000, „ „ 2,380,000,000 

Austria (1860) Florins, 2,360,000,000, „ „ 1,120,000,000 

Spain (1864) Reals, 14,531,000,000, „ „ 726,000,000 

Russia (1861) Roubles, 418,000,000, „ „ 300,000,000 

Prussia (1862) Thalers, 301,000,000, „ „ 215,000,000 

Portugal (1862) Milreis, 149,000,000, „ „ 168,000,000 

Turkey (1864) £ 31,000,000, „ „ 155,000,000- 

Belgium Francs, 655,000,000, „ „ 131,000,000 

Denmark Rix-dollars, 95,000,000, „ „ 53,000,000 

$9,248,000,000 
If the debts of all other European powers may be estimated at . . 752,000,000 

We have a total of $10,000,000,000 

To this we add the debt of the United States (say) 2,750,000,000 

Grand war total $12,750,000,000 

The following table, which we take from the " Financial 
Reformer" (British), is more impressive than any statements 
we could make in regard to the expenses of the war system 
in England, and the small proportion required for the civil 
department of the government : — 

From 1834 to 1861 inclusive (nineteen years) the 

total expenditure was £1,125,689,474 

For army £226,084,027 

For navy 177,654,537 

Operations .... 16,164,290 

■ £419,902,854 

Interest and charges on the debt . . 546,400,540 

Total for fighting purposes and debt 966,303,394 

Leaving for all other purposes £159,386,080 

Hence it appears that there was ex- 
pended during this period for war, 
preparations for war, and debt, a con- 
sequence of war, an average, every 
year, of £50,858,073 

And for civil government 8,388,741 

Difference £42,469,332 per annum. 



CHAP. VIII.] ECONOMY OF THE WAR SYSTEM. 429 

Another important point to be noticed in relation to the 
war expenditures of European nations is, that they have 
been constantly increasing, and at a fearful rate. 

The increase of taxation in England between 1863 and 
1865 was fifteen millions sterling per annum over the 
previous decade. 

The cost of the army, navy, and ordnance combined, 
in 1835, was less than twelve millions ; in 1850, it was fif- 
teen millions ; in 1861, it had increased to thirty millions 
sterling. Mr. Gladstone stated in 1861, that " the total 
expenditure (imperial and local) had grown nearly twenty 
million pounds in the space of seven years ; and that, taking 
the annual savings of the country of £50,000,000, the 
whole interest of eight years' accumulation was absorbed 
and swallowed up in this expenditure." 

Mr. Laing, Ex-Finance-Minister of India, in a late lecture, 
said that " the national debt of France had, in ten years, 
increased .£150,000,000, while that of Austria and Italy 
had increased £68,000,000. Spain was at its wits' end to 
make both ends meet; while Turkey was knocking at the 
doors of every banker in Europe, ready to accept any thing 
from any body who was ready to lend them, on any terms. 
. . . During the last ten years, there had been an extra 
expenditure of £300,000,000, incurred by two great Euro- 
pean wars ; £300,000,000 more added by minor wars and 
an armed peace." 

Mr. Gladstone has made the following statement, — " that, 
between the years 1842 and 1853, the income of the wealth 
of this country (Great Britain) was at the rate of twelve, 
and that her expenditures were at the rate of 8|, per cent ; 
while, between 1853 and 1859, the national wealth grew at 
the rate of 16|-, while the national expenditure was at the 
rate of 58, per cent." 

Such, then, is the condition, not only of England, but of 
all the European powers ; and the United States of America 
are now to be placed on the same level. All have an in> 



430 CONSUMPTION. [book V. 

mense indebtedness, the interest upon which consumes a 
large part of their current revenue. Each finds its annual 
budget increasing at a fearful rate ; each finds itself obliged, 
under the present competition in armaments, to expend an 
increasing sum, from year to year, for warlike preparations 
by land and sea. 

These facts should be kept distinctly in mind, when we 
look at the economic bearings of the war system of the 
present day ; and it should, moreover, be remembered, that 
they apply generally to that system as it existed prior to 
the civil war between the American States. But that con- 
flict greatly changed the war system of the world : it per- 
haps would not be extravagant to say, that it revolutionized 
naval warfare. In November, 1861, the British Government 
had, in process of building, fifty-four steamships of war, 
with a tonnage 95,855, with 10,930-horse power, and 1,254 
guns. On the 8th of March following, the Confederate 
ram " Merrimack" appeared in Hampton Roads, and in a few 
minutes, with its formidable prow, sent to the bottom the 
" Congress " and the " Cumberland,'" two of the finest vessels 
in the navy of the United States, and demonstrated that, in 
the future, no reliance could be made upon wooden vessels 
in naval warfare. This great fact disposed of " tvooden 
w«&." On the next day, the " Monitor," with her turret, en- 
tered the Roads, engaged the " Merrimack," and she, in her 
turn, fell before a new and still more powerful enginery. 
Iron sides were no sufficient protection against the turret. 
This was the second important fact ; and, together, they 
turned the whole current of preparation for naval warfare 
in a new, ay and much more costly, direction. 

These considerations have most important economic bear- 
ings ; but their political significance is still greater. In the 
first place, they destroyed the vast supremacy which Eng 
land had held up to that time. Her previous preparations 
and accumulations of war-ships were almost annihilated at a 
blow ; and the nations were thus left to commence together 



CHAP. VIII.] ECONOMY OF THE WAR SYSTEM. 431 

a new race of competition. In the second place, the im- 
mense appropriations hitherto made for naval purposes must, 
if the competition is to be kept up, be increased tenfold ; 
and since, as we have just shown, all the principal nations 
of the civilized world are deeply involved in debt, it becomes 
a very grave and embarrassing question, by what means, 
and out of what resources, all these new expenditures are 
to be met. Besides, the question may well be started, 
whether invention and discovery in regard to military and 
naval engineering and architecture have arrived at their 
ne plus, so that there is no clanger that all these now ex- 
traordinary means of destruction will not be superseded by 
others as much in advance of these as Enfield rifles are 
in advance of the old flint firelocks. Such, fortunately or 
unfortunately, is the condition and aspect of the war system 
to-day. To the political economist, as well as the practical 
statesman and financier, it must be a matter of serious 
consideration whether the time has not come when new and 
improved ideas of international intercourse are not quite as 
desirable as new engines of human destruction ; whether 
the important events to which we have referred, do not sug- 
gest a different policy from that which has prevailed in the 
past. 

To take the United States as an example : The national 
debt, when consolidated, will not be less than three billions, 
the interest of which will be at least one hundred and eighty 
millions. To this must be added the vast pension list which 
a four-years' war has created. To this still is to be added 
the immense amount which is sure to be awarded for claims 
on the government for spoliations and damages occasioned 
by the operations of war. And if we are to enter into com- 
petition, under the present policy, for iron-clads, monitors, 
land fortifications, and standing armies, we must have an 
enormous addition to our current expenses. Of necessity 
there must be a very heavy and constant taxation to meet 
all this, and that, too, with no prospect of paying off the debt. 



432 CONSUMPTION. [book v. 

The war debts of modern times are not paid off, and never 
will be, until the policy of increasing preparations for war 
is discontinued. But the condition of the United States 
in this regard, as we have already shown, is the condition 
of Christendom ; and therefore, if a change is to be brought 
about, all are alike interested, and must unite in effecting it. 

We have said, that, under existing circumstances, war 
may be a political necessity ; but is it a moral necessity ? 
Is there any thing in the nature of man which makes the 
destruction of his fellow-men in war unavoidable ? Is it 
not as feasible and as consistent with his nature to dispense 
with appeals to brute force amongst different communities, 
as between different individuals in those communities ? 
Would not the same principle, the same common sense, 
which establishes a court of justice for the settlement of 
private disputes, establish a similar tribunal for the settle- 
ment of international differences ? 

If it is indispensable to the preservation of peace amongst 
individuals, that there be a well-defined code of laws, which 
all may understand, and all must be required to obey, is it 
not equally indispensable amongst different communities ? 

At present, as we have said, there is no established code 
of international law, or any common tribunal for the settle- 
ment of international disputes. Is the attainment of these 
admittedly important objects practicable ? In what manner 
can they be secured ? Evidently in the same way in which 
all social institutions are formed ; viz., by the voluntary, 
harmonious action of those who are directly concerned. 
And this can only be secured by concerted and concentrated 
effort. " Concentration," says M. Guizot, " is the highest 
element of civilization." The parties must come volunta- 
rily together ; must consult upon their mutual interests ; in 
short, there must first be a general international convention, 
or congress. This is a necessary preliminary. Is it feasi- 
ble ? Can the human mind achieve this advanced step to a 
higher condition ? 



CHAP. VIII.] ECONOMY OF THE WAR SYSTEM. 433 

We answer these questions, without hesitation, in the 
affirmative, and for the following reasons : — 

First, Because the present system is at war with the 
plainest dictates of common sense, and the highest interests 
of mankind. 

It may be safely assumed, that any system, policy, or prac- 
tice, which, in the course of events and the lapse of time, 
has become, not only absolutely useless, but positively per- 
nicious and absurd, cannot long continue ; that the advan- 
cing tide of intelligence will sweep it away as the rubbish of 
the past. 

FOLLY OF RIVAL ARMAMENTS. 

Each nation, as we have seen, has its standing army, its 
navy, fortifications, dockyards, arsenals, &c, &c. ; and, 
consequently, each is endangered by the military and naval 
preparations of every other, and they live in constant 
mutual jealousy. Hence, if it is known or suspected that 
France is making an addition to her navy, England at once 
makes as large or larger one to hers. And, having done 
this, is either any safer than before ? Are not both as rela- 
tively defenceless as ever ? But France lays down still other 
keels, and the dockyards of England are again in motion, 
until the fleets of both are yet further enlarged ; but has 
the relative condition of either, as to security, been im- 
proved ? Has not each increased its means of aggression as 
well as defence? 

That which is true of France and England is true of all 
the nations of Christendom. Russia does her utmost to 
create a vast navy. Austria, Prussia, Turkey, Sweden, do 
all in their power to prepare for war, however great the bur- 
den and sacrifice. And yet does this general system of 
mutual armaments make them any more safe, respectively, 
than if no such preparations were made by either ? If this 
question must be answered in the negative, is not the arrant 
folly of the system fully demonstrated ? 

28 



4-34 CONSUMPTION. [book v. 



CHANGES IN WAE ARMAMENTS. 

/Secondly, Because the changes to which we have already 
referred, that are continually taking place in the machinery 
of war, are so great and frequent as to forbid all hope that 
nations can ever be fully prepared for war. We need not 
dwell upon this point ; for its importance is obvious to any 
one who looks for a moment at the subject. What terrible 
engines of destruction, what unheard-of forces, are yet to be 
brought into use for the destruction of mankind ? 

The mind stands aghast at the awful possibilities of the 
future, if the present senseless and inhuman competition 
in war preparations is to be continued. The moral sense 
of the world revolts at the thought of such stupendous folly 
and crime. 

INFLUENCES ADVERSE TO WAR. 

A third consideration which leads us to expect that the 
present war system will be superseded by a general confed- 
eration for the preservation of peace, is, that all the influ- 
ences of the age are against its barbarities. 

(a) Commeree, as well as common sense, makes a strong 
plea in favor of peace. Extending with almost inconceiva- 
ble rapidity, its influence is every day advancing, and its 
interests becoming more identified with the harmony of na- 
tions. No stronger illustration of this was ever afforded 
than that presented by the war of the Rebellion in the 
United States. Although a civil war, confined, of course, 
within the territories of our government, it deranged, to a 
wonderful extent, the commerce of the world. How tre- 
mendous its effect upon European industry ! How rapidly 
did it transfer the wealth of Europe to India and other 
Eastern nations ! How severely did it affect the commerce 



CHAP. VIII.] ECONOMY OF THE WAE SYSTEM. 435 

of the United States, driving nearly half of it from the 
ocean in the short period of three years ! 

But how circumscribed were the effects of that conflict to 
what would be felt, should a war arise between Great Britain 
and the United States ! In such an event, how painful and 
wide-spread would be the devastation to the commerce of 
the two most commercial nations on the face of the globe ! 
How terrible the results to trade and industry in every part 
of the earth ! Yet no preparation is being made to prevent 
the occurrence of such a calamity ; but every thing is done 
to make it as destructive and ruinous as possible, should it 
take place. It does not seem reasonable to suppose that 
such a state of things can be permanent ; that all the great 
social, moral, and material interests of mankind can, in the 
present advanced period of intelligence, be allowed much 
longer to be thus imperilled. 

(6) The rapidly increasing intercourse by travel between 
the different peoples is making them more acquainted with 
each other, and dissipating much of that ignorance and prej- 
udice which, in times past, has been a prolific source of 
jealousy and distrust. 

(c) The education of the masses, their gradual progress 
in knowledge, and their growing influence in public affairs, 
is another very hopeful indication. The people are being 
enlightened, and are becoming too " wise " to be made the 
dupes of a system of which they are the greatest victims.* 
(d~) The neutralization of the Black Sea, by the treaty 

* It may perhaps be expected, that we should mention " the onward pro- 
gress of the gospel" as one of the influences adverse to war: but we are 
indisposed to enter upon the theological question, whether Christianity 
condemns war as sinful; and, consequently, as we cannot assume that it 
does so, can make no argument as to its influence in preventing war. 
Christianity, certainly, has no direct tendency to abolish any system which 
it does not positively condemn, still less any practice which it openly sanc- 
tions and approves. We have our individual opinion, that war is not in 
accordance with the teaching and example of the great Founder of Christian- 
ity, but shall not moot the question here. We prefer to look only at the 
economical, political, and social bearings of the subject 



4o6 CONSUMPTION. [BOOK V. 

made at Paris, 1856, at the conclusion of the war of the 
Crimea, is a very significant fact, as connected with dis- 
armament and the permanent peace of the world. By that 
treaty, the parties agreed that no ships of war should enter 
the Black Sea, but that its waters should be sacred to peace- 
ful commerce. This was the introduction of a new princi- 
ple into European diplomacy, although the idea had before 
been adopted in the Treaty of Ghent, made, in 1815, between 
Great Britain and the United States, which contained a 
provision, that the great lakes, lying between the territories 
of the contracting parties, should be neutralized, and neither 
party build fortifications or maintain a naval force upon 
them. This treaty has been observed down to the present 
time, upwards of fifty years, to the great advantage of both 
parties. 

The argument suggested by these two facts is, that, if the 
neutralization of the American lakes and the Black Sea is 
found so feasible and beneficial, the same principle might, 
with still greater advantage, be extended to all the seas 
and oceans on the globe. 

A CONGRESS OP NATIONS PROBABLE. 

But our fourth reason for expecting that the great object 
of disarmament will be accomplished, arises from the con- 
sideration that public sentiment has been evidently turned 
in that direction for the last fifty years, and much has 
actually been done towards bringing the subject directly 
before the different nations. 

(a) Associations have existed for a long time, whose 
object has been to bring about permanent and universal 
peace ; and one of the prominent measures insisted upon 
as necessary to this end, has been a congress of nations. 
To bring this idea distinctly before the public mind, an 
international Peace Congress was held in London, in 1843 ; 
in Brussels, in 1848 ; in Paris, in 1849 ; in Frankfort, in 



CHAP. VIII.] ECONOMY OF THE WAR SYSTEM. 437 

1850 ; in London, in 1851 ; besides several other general 
convocations in regard to the same subject. At all these, 
the prominent idea has been the establishment of a general 
congress, organized by the representatives of all the states 
of Christendom. 

The result of these movements has been to awaken an 
interest in the public mind in relation to this subject. 

(5) In addition to these voluntary and merely philan- 
thropic efforts, the question was distinctly presented in the 
British House of Commons by the late Mr. Cobden, who 
took great interest in the movement, and had perfect faith 
in its ultimate success. 

So far back as June, 1851, this distinguished member of 
Parliament moved, " That an humble address be presented 
to Her Majesty, praying that she will direct the Secretary 
of State for Foreign Affairs to enter into communication 
with the government of Prance, and to endeavor in future 
to prevent that rivalry of warlike preparations in time of 
peace which has hitherto been the avowed policy of the two 
nations ; and to promote, if possible, a mutual reduction 
of armaments." 

Lord Palmerston expressed his high approval of the 
motion, and said, " I am glad the honorable member has 
taken advantage of the meeting of the world (the Great 
Exhibition), to declare in his place in Parliament those 
principles of universal peace which do honor to him and 
the country in which they are proclaimed." Yet his lord- 
ship objected to being " bound into negotiations ; " and, of 
course, nothing was ever done. 

(c) A still more encouraging fact is found in the action 
of the French emperor in relation to this matter. Placed 
at the head of the most military nation in Europe, he pro- 
posed a congress to devise, amongst other measures, the 
means of reducing those enormous standing armaments 
which are the curse and peril of the world. 

This proposal England alone, of all the governments of 



438 CONSUMPTION. [book y. 

Europe, declined. The Emperor of Russia, in his reply- 
to the invitation of the French Emperor, said : " A loyal 
understanding between the sovereigns has always appeared 
to me desirable. I should be happy if the proposition issued 
by your majesty should lead to it." The King of Prussia 
replied, " In such a work I will join with all my heart, 
and in perfect liberty only to consult my own solicitude for 
the general interest of Europe." The King of Italy said : 
" I adhere with pleasure to the proposal of your imperial 
majesty. My concurrence and that of my people are as- 
sured to the realization of this project, which will mark a 
great progress in the history of mankind." 

The King of Norway and Sweden, the King of Denmark, 
the King of the Netherlands, the King of the Belgians, the 
Queen of Spain, the King of Bavaria, the King of Hanover, 
the Pope, the Germanic Confederation, the Kings of Sax- 
ony, Wurtemburg, and Greece, all replied to those pacific 
proposals of the French Emperor in terms of high and 
cordial approbation. 

(cZ) The public press in Europe has also spoken very 
strongly in favor- of disarmament. 

The subject is thus referred to in the Paris journal, 
" La France : " — " Now let us for a moment suppose, that 
by an understanding with the great powers, a disarming 
in the proportion of one-half was effected. Immediately, 
1,907,924 men of twenty to thirty-five years of age, consti- 
tuting the flower of the population of that age, are restored 
to the labors of peace, and at once a saving of three hundred 
and twenty million dollars is effected in the totality of the 
annual European budgets ; with that sum Europe might 
add, each year, to the railways at present existing, six 
thousand two hundred and fifty miles. She might estab- 
lish in every commune, and even in each section of the 
communes, a primary school. These great improvements 
once realized, she might, if she decided in maintaining the 
same sum in her budget, apply it to the payment of the pub- 



CHAP. VIII.] ECONOMY OF THE WAR SYSTEM. 439 

lie debt. The annual interest upon the debts of the different 
European states being about four hundred and sixty-five 
millions of dollars, they might be paid off in about thirty- 
six years. If, on the contrary, the countries interested 
preferred applying the four hundred and sixty-five millions 
thus saved, to the reduction of those taxes which weigh 
most heavily on the production or consumption of articles 
of necessity, what an alleviation to the people, and what a 
stimulus it would give to business ! The labor of these 
1,907,924 men, at only two francs (about forty cents United- 
States currency) per day, would amount to about $1,500,- 
000,000 per annum." 

The " Journal des Debats," of Dec. 14, 1864, says : — 
" The immense majority of the intelligent' inhabitants of 
Europe have pronounced a preference for peace rather than 
war, for economy rather than enormous budgets, for pro- 
ductive rather than unproductive outlays ; and yet the 
attitude of nations would lead one to believe that war is 
possible and imminent, for on every side the system of 
great armaments devouring so much capital is persisted 
iii." — " La Presse " says : " Disarming is the order of the 
clay in Italy, is in course of realization in Austria, and, 
being proposed by the Palmerston ministry, has formed the 
subject of discussion in the English journals. Spain is 
thinking of reducing the number of men in her army and 
navy, thanks to the still-increasing probability of a Euro- 
pean congress, the present necessities for which begin to 
popularize the Utopian character of the scheme. . . . We 
are pleased with the transformation : it is the outset of a 
prosperous career ; it is the triumph of a truly great policy. 
It is not the congress itself, but, as a Spanish journal said 
a few days since, it is the preface to the congress." 

In view of the encouraging facts we have presented, 
does it not seem highly probable that a general congress of 
nations will not be delayed much longer ? The necessity 
for such an institution, in an economical and commercial 



440 CONSUMPTION. [book V. 

point of view, is becoming every day more apparent and 
pressing. The matter rests entirely with the three princi- 
pal nations of the world, — Great Britain, France, and the 
United States of America. They have the power to do as 
they will. Acting in concert, their influence is irresistible, 
and they can achieve any object that commends itself to the 
common sense of mankind. There is no adverse interest 
in the case, and it is only requisite that some one of the 
great powers should take the initiative. True, the French 
Emperor's proposal failed ; but the condition of the world 
has greatly changed since it was made. The American 
Union has been restored, republicanism has been vindicated, 
the barbarism of slavery abolished, and the civilization of 
the world has received a powerful impetus. 



CHAPTER IX. 

ON THE ECONOMY OF PUBLIC EDUCATION. 

It is difficult for Americans to sympathize in the least with 
the objection which is made in England, even by those dis- 
tinguished for liberal sentiments, that compulsory education 
is a breach of the liberty of the subject. Our incapacity for 
understanding or even respecting that sentiment arises from 
the fact that such education was early made one of the 
foundations of our social and political organization, and we 
have grown up to regard it as an accepted principle of good 
government. Our intolerance of the English theory, how- 
ever, is not helped by the consideration that their own state 
makes the support of a particular religion compulsory on 
all inhabitants. 

This is not the place to discuss whether legal provision 
for the instruction of youth is an invasion of that field 
which is recognized, in all governments moderately free, aa 



CHAP. IX.] ECONOMY OF PUBLIC EDUCATION. 441 

belonging to personal rights ; but it may not be inappro- 
priate to remark, in passing, that the period to which 
compulsion is applied in this matter is that which cannot, 
for a moment, by any rational philosophy, be contemplated 
as capable of liberty. It is the period of youth to which 
restraint always attaches. Nor can it be urged that such 
compulsory instruction is a breach of the rights of parents ; 
for their rights are not perfect and primary, but depending 
on the gift of the state, which can resume the functions of 
control in any degree for the public good. 

The economic results of public education are manifestly 
in two directions. ' 

1st, It is intended to effect the prevention of pauperism 
and crime. To use a popular American phrase, "It's 
cheaper to build schoolhouses than jails." In looking at 
this matter, we need to take a view between that of the 
optimist who expects the extinguishment of sin and vice by 
the advance of knowledge, and. that of certain grossly 
material philosophers who compose statistical tables to prove 
that general enlightenment rather encourages crime. The 
first notion is refuted all too quickly by sad experience. We 
may fairly decline to consider the latter till it receives the 
sanction of one practical statesman. Such is the theory of 
our government on public education. We will not argue 
this. We will say that it is an Americanism to rely on 
general instruction to check the grosser inclinations of 
society, refine its manners, foster its self-respect, and multi- 
ply its restraints. 

2d, Public education is intended to bring about, posi- 
tively, a higher economical condition. 

It is mind that gives man power over the brute creation ; 
and it is by enlarging and instructing the mental power that 
the greatest possible factor is introduced into his effort. 

We do not speak now of the education of the laborer in 
art or science for their own sake, but solely for his advance- 
ment as an individual being ; nor do we refer now to the 

I 



442 



CONSUMPTION. 



BOOK V. 



indirect influence on social order and national power, en- 
larging the desires, stimulating the activities, and promoting 
Hie frugality of a people. We allude only to the education 
of all who lahor, whether as masters or apprentices, inventors 
or drudges, governors or soldiers, in order that they may 
more intelligently and efficiently discharge their parts in 
production. 

It pays to do so. A few years of hoyhood spent in prac- 
tical studies has taken many a man out of the class of day 
laborers, and placed him among those who superintend 
the work of hundreds, or by scientific discovery multiply 
the power of industry manifold. Nor is it alone in these 
marked cases that a fortunate result has appeared. It is 
perfectly practicable in any country to raise the whole body 
of the people one distinct grade in industrial character; to 
make every hand and every eye more strong and accurate, 
while giving to each the repeating power of mind. 

The two modern communities which earliest connected 
a general 'education with the agencies o( government were 
Scotland and New England. In each, the advance of local 
industry, and consequently of wealth and social power, has 
exhibited most strikingly the economical advantages of such 
a system. But it was when the inhabitants of these regions 
went abroad to engage in the industry of foreign countries 
that the triumph oi' public education became complete and 
conspicuous. For more than a century, their intelligent labor 
has reaped the richest harvests of the world. Not to speak 
of social and civil honors, the Yankee and the Scot has 
everywhere risen, by virtue of early and thorough training, 
general information, and ready resource, to the mastership 
o\.' all enterprises, all sciences, all arts. He never remains 
on the lowest plane of lahor : for he always Binds enough who 
are condemned to it by ignorance and that want of self- 
respect and social confidence which results from ignorance. 
He becomes " boss," overseer, master, employer, contractor, 
projector, from the force of that character which was im- 



CHAP. IX.] ECONOMY OF PUBLIC EDUCATION. 443 

pressed by early education, and those accomplishments 
which it bestows ; nor only this. Although we may remem- 
ber that for the greatest inventions we are indebted to inborn 
genius or fortunate accident, we cannot but admit that ge- 
nius is more likely to be born in men of such a stock, and 
that accidents are more likely to be fortunate under this 
mental training and industrial activity ; and accordingly we 
find, that beneficent discoveries, whether in comprehensive 
laws or little useful " knacks-," have repaid a million-fold all 
that education ever cost Scotland or New England, let alone 
morality, honors in scholarship, happy homes, and civil 
peace. In plain speech and literal truth, no miner, who at 
the first blow broke into one of nature's sub-treasuries and 
found gold rolling out upon his feet, ever by miracle of 
fortune hit upon a richer reward than every people may 
secure, beyond the slightest peradventure, by the public, 
thorough education of its labor. 

It is not alone demanded in the interest of a greater 
production, but also to secure a more just and uniform dis- 
tribution of wealth. The more highly educated, industrially, 
the workman is, the firmer and apter resistance will he 
offer to the aggressions of capital or competing labor ; the 
higher will become his necessary wages, the more reasonable 
his remuneration. It is the poor man's share of wealth 
which, after all (while we respect the rights of capital 
for its own sake no more than for the welfare of labor), 
is the object of humane science and legislation. To rob 
the rich, or to make them objects of invidious enactments, is 
not to help the poor ; it is only to make their misery com- 
plete and hopeless : but, while wealth is sacred and luxury 
is unrebuked, to elevate and strengthen the humbler classes 
by all moral and educational influences, — this is to bring 
comfort and leisure to every cottage, frugality and temper- 
ance to every home, to attain the perfection of the industrial 
state, almost to realize the dreams of Locke and Sidney. 



444 CONSUMPTION. [book v. 



CHAPTER X. 

IV. EEPRODUCTIVE CONSUMPTION — ITS CHARACTER AND 
ORIGIN. 

Reproductive consumption is the use of wealth as capital. 
Only a portion of the wealth of the world is applied to the 
office of creating new wealth. That portion is called " capi- 
tal : " that application is reproductive consumption. 

It has been shown that mankind are continually wearing 
out their wealth ; indeed, that it wears out by natural 
causes, independently of use ; and that therefore, if men 
would not become destitute, they must make constant, un- 
ceasing efforts after fresh production. 

But it is a principle of our nature to do what we have to 
do with as little labor as possible ; that is, with as much 
help as possible. Now, it is found true, that, by employing 
present wealth, production is easier and larger, even after 
the amount so used has been replaced. For this reason, 
men take freely of what they have, and destroy it to-day 
that they may get a greater good to-morrow. This is the 
only reason why capital is used. The first capital was 
created without capital. Why should not all succeeding 
creations be brought about likewise ? Because it is found 
to save human labor and multiply human enjoyments to 
devote the present to the future. 

But this application of capital presupposes the constancy 
of nature. Men would not put grain into the ground unless 
they had the assurance of a return. Every act of this kind 
requires faith, — is an act of faith. 

But even yet we have not secured reproductive consump- 
tion. Every article of value, either in itself, or in that it 
will exchange for other things, is fitted to gratify some 
craving of the human appetites, tastes, or passions ; and, if 



CHAP. X.] REPKODUCTIVE CONSUMPTION. 445 

nothing withstands these, they will certainly prevail. Here 
is an object of value. A positive force operates on the pos- 
sessor to consume it at once ; and he will do so as surely as 
a hungry lion will tear his prey, unless something more than 
brutal instinct of immediate self-gratification is found in the 
man. What is that which can stand up against the craving 
of immediate wants, and keep them away from wealth, that 
it may be devoted to other uses ? It is not necessarily a 
high moral quality. It may be purely selfish. It may look 
on to the gratification of personal desires only. It may 
entertain no benevolent designs, nor be capable of any sacri- 
fice for others. All its denial may be in its own interest. 
Yet we say that it is wise and brave and commendable. It 
is the principle of frugality. Only as this is found can the 
reproduction of wealth be secured. Here, then, we have 
the conditions complete. The process is as follows : — 

1st, The certainty that present wealth will fail in time. 

2d, The willingness to anticipate such destitution by 
labor. 

3d, The fact that capital can greatly assist labor in this 
matter. 

4th, Such a constancy in nature as secures the return of 
capital. 

5th, Such a capacity of self-denial as will resist the 
impulse of immediate gratification, and devote wealth to 
reproduction. 

But we find we have omitted one condition. Here is 
wealth. If nothing intervenes, it will certainly be devoted 
to luxurious consumption, because the desires of man in 
that direction are a positive and constantly operating force. 
Frugality comes in with wise forecast and strong restraint, 
and wrests a share from the grasp of the appetites. Seem- 
ingly all that is necessary 1ms been attained. But it is yet 
to be decided whether this share shall go into the province of 
mistaken, or into that of reproductive consumption. There 
is a very considerable chance yet before it. We have not. 



446" CONSUMPTION. [BOOK V. 

however, regarded this as of great practical importance, 
inasmuch as it is generally admitted that the intelligence of 
mankind is, on the whole, sufficient to direct its own indus- 
try ; and that tliis intelligence resides not in the major will 
of the mass, hut in each individual, or voluntary association. 
It lias often been proposed to take wealth away from luxu- 
rious consumption, by force of Law, for the good of the 
whole ; but legislators and philosophers have usually agreed 
to leave it to the intelligence and self-interests of capitalists 
and laborers how the wealth so saved from luxury shall bo 
applied. To bo sure, we have found in certain specific 
matters, and under the confusion of political forms, that 
laws have been enacted to instruct industry as to its own 
wants and behoofs ; hut such can never be reasonably de- 
fended on general grounds, and have to hide themselves 
under pleas of state policy, or find " protection " under the 
banners of party. It will not be necessary to discuss, as a 
principle, the superiority of government over individual and 
associated intelligence and interest in the direction of labor. 

We have now shown how it is that wealth becomes capi- 
tal ; for what reasons and by what forces it is taken out of 
the province of enjoyment or of waste, and devoted to the 
office of reproduction. 

I. What amount of reproductive consumption is neces- 
sary ? 

What should he the proportion of capital to the entire 
mass of wealth, to secure the industrial well-being of any 
people? This question will be best answered by an exami- 
nation of the several offices which capital is to perform. 

1st, Capital must support labor. 

To all industry there is an entrance fee. Not only must 
the child be supported through years of helplessness until he 
becomes an able-bodied laborer; but even then every day's 
work requires a previous supply of food, clothing, and shel- 
ter. These form, at the least, no inconsiderable share of 
capital, though varying greatly with el i males and habits. 



CHAP. X.] REPRODUCTIVE CONSUMPTION. 447 

A country which turns its crops three or four times a year 
will not need so large a stock of provisions for the mainte- 
nance of its labor as one that has a short season, and is locked 
up in frost and ice the rest of the time. The same diversity 
'exists in respect to shelter and clothing. All degrees of dif- 
ference will be found among the countries of the world. 

Here, then, is the first duty of capital. It must support 
labor. Out of its products enough must be regularly laid 
by to subsist the laborers and those dependent on them till 
the next yield. The necessity is so plain and absolute as to 
be generally recognized. Few, indeed, are the peoples or 
persons who have not forethought enough to prepare for 
their bodily maintenance from year to year ; while, yet, there 
are found individuals in every community, and even large 
communities are found in the world, which make so scanty 
provision, that, at the least accident or delay of the coming 
crop, they are caught in great physical distress, and are often 
^educed to suffering and beggary. What a light Alkman 
throws on early economy when he calls spring " the season 
of short fare " ! 

2d, Capital must provide for the increase of population. 
This is not because capital wants population to increase, 
but because population decides so. It is elsewhere shown 
what causes operate in limitation. But, so far as this in- 
crease takes place, capital evidently must furnish support 
either in paiiperism or in labor. It is needless to say that 
the latter is the cheapest and best, under any condition, for 
capital. And this may be continued until the limits of cap- 
ital are filled. If subsistence can be had, propagation will 
naturally go forward. This, of course, increasing the indus- 
trial power, tends, in a healthy state, to augment capital ; 
and so, by mutual interaction, an advancing condition of 
society is secured. It is only by false and vicious laws that 
misery and crime are multiplied in this way, rather than 
power and happiness. 

3d, Capital must supply its own waste. 



448 CONSUMPTION. [book v. 

Nothing else will. Labor only wears, out capital. What- 
ever is wanted to renew and keep up the present stock of 
machinery and material, must be got out of wealth. 

4th, Capital must keep up with economic improvements. 
Individuals and communities are affected in this respect just 
as they are by the introduction of new implements of war. 
All were on a level before ; but, if new and deadlier arts are 
introduced into one, all others are at once forced to adopt 
them, or be at a disadvantage. So while a people might be 
getting along very well, and feel no need of any discovery 
to shorten or supplement its labor, yet, if such a discovery is 
made, it must use it, or be thrown out in the competitions 
of commerce. The operations of this cause may sometimes 
soon reduce the amount of capital required for a specific 
purpose ; but, generally, its effect is, while multiplying pro- 
digiously the results of labor, to increase the actual amount 
of tools and materials which labor employs. Irrespective of 
this, a great deal is also wasted by falling out of fashion and 
use, in the change of business, or of location. 

5th, Capital must support government. 

This is not the place to show the economical merits of 
government, or to dwell on its necessity. It does and will 
exist, and capital will be charged with its maintenance. At 
the last resort, and after all the complaints capital may 
make of the burden, it would never consent to be deprived 
of the protection of the public force. Capital can only live 
under law, and for law it must pay, — no matter what the 
price. 

II. What amount of reproductive consumption is desira- 
ble? 

We have been able to develop with precision those abso- 
lute necessities which take wealth off to capital. Wealth 
must support population, provide for its increase, furnish 
labor with tools and material, and meet the demands of 
government. In this it has no liberty. It must do so, or 
cease to be. But when these first gross demands have been 



CHAP. X.] REPRODUCTIVE CONSUMPTION. 449 

met, shall wealth go further in the direction of reproduc- 
tion. Shall the energies of the people still be bent on 
acquisition ? shall greater wealth be set always in front, as 
the goal of universal effort ? Shall the products of the past 
be scrupulously employed as the seed of still more abound- 
ing harvests ? or shall the energies relax, when nature is 
satisfied in her simplest wants ? Shall leisure or culture 
or pleasure now become the objects of life ? Shall the 
fruit of to-day be enjoyed in itself, and the passing hour be 
spent in its own duties and amusements ? 

It cannot be denied that these are vital questions, and 
that as they are answered will the economical character of 
each people be taken on. But we here enter rather the field 
of the statesman, the moralist, and the philosopher, than of 
the economist. The science of wealth, of course, cannot 
reasonably object to the pursuit and acquisition of wealth 
in any degree ; yet it may also recognize that, as man has 
other than economical relations, so he may have other obli- 
ligations, and may rightfully yield to them. These, while 
it does not discuss, it respects. It is for the philosopher, 
the moralist, the statesman, to decide, if they can, how far 
the public or individual welfare, looking at all interests and 
duties, will be subserved by the increasing production of 
wealth, by heaping store on store, gathered from the bounty 
of nature ; by pushing up the fabric of industry to its might- 
iest proportions ; or, on the other hand, by resting satisfied 
with a moderate and primitive competence, and working for 
quite other objects than wealth. 

So that we have no great occasion here to discuss these 
questions, while yet two or three observations may set them 
in their proper relation to our science. 

(1) In a normal and healthful condition of society, there 
will be as little reason to ask such questions, for practical 
purposes, as to inquire how much centrifugal or centripetal 
force the universe needs. All that is determined in the con- 
stitution of things. The desire to gain and the desire to 

29 



450 CONSUMPTION. [book V. 

spend are both manifestly in the original appointment of 
our minds ; constant, abiding forces ; and no more benefit 
can be derived from destroying or weakening either, than 
from loosening or tightening the bands of the universe. It 
is just right as it is. The two forces, by their antagonism, 
bring out the best order. 

But human institutions and human actions can affect 
these forces in wealth. The course of things may be such 
that the possession of property shall be made undesirable by 
violence ; or the springs of industry fail, in the loss of am- 
bition and hope; or- bodily and mental vigor be sapped by 
vice or self-indulgence. On the other hand, the tendencies 
of personal character and social condition may bring out 
the desires of gain in such a degree as no moralist, no lover 
of his kind, can approve ; all arts, all interests, all duties, 
may be forgotten in the universal haste to be rich ; avarice 
may grow into a passion, may spring into crimes ; all that 
is good or holy, all benevolent ministries, all noble aspira- 
tions, may be drowned in the fast-rising waters of greed. 

These are the limits, on the one hand and the other, of 
our economical condition. It will not be denied that the 
subject has all the interest that belongs to human welfare. 
But, we repeat, this is the province of other sciences than 
that of wealth. Let the statesman, the moralist, the reli- 
gious teacher, instruct and persuade men to the true wis- 
dom of life. Political economy can only regard them as the 
producers of wealth. 

(2) We may be permitted to remark, however, that the 
degree of reproductive consumption which is desirable will 
be determined somewhat by the geographical position and 
political relations of a people. A nation that has, or aspires 
to have, international power and influence, has need of 
greater resources than one which is content with the simple 
pursuits of internal comfort and tranquillity. There is a 
marked difference in the degrees of wealth necessary, as a 
people thrusts itself into the arena where commercial advan- 



CHAP. X.] REPRODUCTIVE CONSUMPTION. 451 

tages, colonial acquisition, territorial conquests, military 
glory, and continental supremacy, are contended for ; or re- 
tires to the development of its own soil, and the care of its 
domestic happiness. 

But, still further, we find that one controlling reason for 
production, even in the least ambitious nations, has been the 
general and distant apprehension that it may at some time 
be called on to defend itself. The world over, statesmen, in 
all ages, have felt the necessity of securing economical power 
as the means of national security. Here, again, we see 
that as a country is isolated or open to attack, is naturally 
fortified or easy to be overrun, so the reasons for obtaining 
a large production will be less or more urgent. Many such 
considerations will influence the founder or governor of a 
state, in determining whether the reproductive agencies 
shall be pressed to their extreme, and the influence of law 
be thrown on the side of acquisition and accumulation, or 
all shall be left to individual taste or caprice. 

(3) It is unquestionably true, that, all other things equal, 
the desires to spend or to gain will be differently developed in 
different people, according to the individual genius. Peace 
and liberty will not inspire some races with a high economical 
ambition ; nor can the utmost violence of persecution, dis- 
order, and corruption wholly suppress the mighty instincts 
of acquisition in others. And between these extremes every 
degree will be met. Just as some plants are born for beauty, 
grace, and fragrance ; others with homely virtues and for un- 
romantic uses, — so men bring with them impulses, ideal or 
practical, that determine them to their several courses, all 
the way from the serenest speculations in ontology to the 
maddest speculations in oil. 



452 CONSUMPTION. [book y. 



CHAPTER XI. 

POPULATION. 

The question of population has been invested, by the treat- 
ment of British writers, with a great mystery and terror. 
The glut, famine, and death theories of Malthus have done 
much to impress upon political economy the shape it has to- 
day in the world's estimation. Rightly enough, if they are 
correct, is it called a dismal science. Malthus exhausted the 
direct horrors of the subject ; but the effect was greatly 
heightened by the benevolent efforts of many subsequent 
writers to provide some way of escape from this fatal conclu- 
sion, — efforts which, as they resulted in palpable failure, only 
made the outlook of humanity more dreary and hopeless. 

The fact is, all this British philosophy of population is 
perverted and diseased from its root. It comes out of social 
wrongs and false political institutions. It strives to apply, 
as a universal condition of human being, the miserable re- 
sults of local misrule. Prior to all consideration of such 
arguments, there is reason to suspect theories of subsistence 
and population that come from an island where holdings of 
land are only as one to six hundred or seven hundred inhab- 
itants. 

These principles are intended to apply to the entire sur- 
face of the earth, and have no merit unless capable of such 
extension ; but, to give them their most favorable conditions, 
we will first consider a single district of limited area, — say, 
England itself. 

Two postulates are often assumed, — 1st, That subsistence 
is stationary or retrogressive ; 2d, That propagation is a 
constantly operating force, enlarging population in some 
assignable ratio. The inference is, that the relation of these 
two must bring out destitution and famine. 



CHAP. XI.] POPULATION. 453 

There are here three fallacies : 1st, That subsistence is 
not progressive ; 2d, That population necessarily increases ; 
3d, That, even if these were granted, there would exist be- 
tween them any such melancholy relation as is assumed. 

1st, Subsistence. — The fertility of the earth, instead of 
diminishing, is, under intelligent culture and with the aids 
of science and machinery, constantly increasing. The ad- 
vance of industrial power, in commerce and manufactures, 
not only furnishes direct assistance in agriculture, but re- 
leases, if required, a great amount of labor for the latter 
pursuit. As is the amount of labor applied to land, so is 
the yield, the world over. The England of to-day is vastly 
more fertile than that of the Heptarchy, the Norman con- 
quests, or the civil wars. Nor are all its capacities of pro- 
duction exhausted. It has now millions of acres unre- 
claimed, which are susceptible of cultivation. It is no an- 
swer to this to say that they will not pay for reclaiming. 
That merely shows that English labor has now a more prof- 
itable employment. ' We are discussing only the absolute 
capabilities of the soil. With the known laws of agricul- 
ture, prudently followed, the produce of any country should 
advance in a certain and considerable ratio. Besides, we 
know not what new agents of fertilization may be discov- 
ered, or what shorter methods may be devised for applying 
power. Certainly, the mechanical and chemical discoveries 
of the last fifty years justify almost any degree of expecta- 
tion. 

2d, Propagation. — The rule of geometric increase is a 
favorite weapon in the defence of certain theories ; but it is 
wonderfully far from the truth of nature. Boys have fre- 
quently exhibited, on the blackboard, the immense wealth 
they could acquire if they should lay by a penny a day, at 
interest, for so many years ; and the result seems very 
alarming, as if that particular school would eventually be- 
come the owners of by far the greater part of the earth's 
surface. So much for mathematics. But, in fact, some 



454 CONSUMPTION. [book v. 

days the boys don't earn their pennies, and some days they 
don't lay them by, and some of the boys die ; and perhaps 
the bank unfortunately breaks, or, after a few months of 
continence, a juvenile rush is made upon it, and all hopes 
of fortune disappear in a saturnalia of candy and ginger- 
pop. The illustration is plain and humble ; but it involves 
all the elements that limit the theoretic advance of wealth 
or population. 

To argue from abstract and individual possibilities of 
propagation to the future actual increase of the race, would 
be like a philosopher's predicting an infinite flight for his 
arrow, because of his ascertained law of impulse and con- 
tinued motion, disregarding the opposition of the atmos- 
phere aftd the constant subtraction of gravitation. 

Indeed, contemplating certain positive unquestionable 
facts in history, great instances of depopulation, ages of 
decline, the slow advances of reviving production, we may 
fairly begin to doubt whether propagation is a permanent 
force irrespective of conditions. We may not unreasonably 
inquire whether it ever appears without a special reason in 
the case; whether the rule is not the other way; viz., not 
that population does not proceed in spite of adverse influ- 
ences, but that it is never called out except by physical 
circumstances, which, in all their contradiction and bewil- 
derment to us, really form the condition precedent of human 
reproduction. Why not ? We do not say, that individual 
growth, either vegetable or animal, is a constantly operating 
force, irrespective of circumstances. We recognize the ne- 
cessity of heat, moisture, and special properties of soil to 
educe the latent powers of expansion. Similar, though 
more remote and perplexed, are the influences which bring 
out reproduction in the animal or vegetable. It is there- 
fore more correct to say, that population, instead of being 
limited by adverse, is only developed by favorable, condi- 
tions. We are deceived in this matter, because propagation 
acts almost universally. That happens simply because the 
favorable conditions are almost universal. 



CHAP. XI.] POPULATION. 455 

This argument is not affected by exhibiting a great deal 
of misery, the result of want. The laws of reproduction 
are not responsible for subsequent mismanagement and 
abuse. Nor does this obstruction to propagation, coming 
out of circumstances, operate to the degree of preventing 
deformity or suffering. But it does apply its check before 
the limits of destruction are reached. Speaking generally, 
nothing is born where it cannot live. 

In reference to general use, however, we shall speak of 
adverse circumstances limiting population. 

This whole matter may be perfectly exhibited by an illus- 
tration from vegetable life. The forests have a constant 
tendency to enlarge their bounds, and thicken their growth. 
The rate of individual increase is prodigious in the family 
of trees. And so forests may, when there is no opposing 
force, spread over all adjacent country, and may grow closer 
and closer till the perfectness and beauty of the solitary oak 
are lost in the maze of interlacing boughs. But just as it 
•would be absurd to suppose that the trees would ever grow 
so thickly as to require the woodman's axe or a vegetable 
pestilence, so it is unphilosophical to anticipate an increase 
of population which will require war or plague to reduce it 
to the limits of food. The shoots of human life will no 
more crowd their soil than w T ill the children of the forest. 
As well might a benevolent botanist, lamenting the natural 
logical increase of the trees, predict internecine arborial 
war or sylvan infanticide, as Malthus, from abstract princi- 
ples of human increase, possible in individual cases, forecast 
his dreadful tables of starvation and crime. The spread of 
the human race, as of the sylvan, limits itself by the chemi- 
cal resources of the soil, the fostering influences of the air, 
the superficial capacities of the ground. The agencies of 
animal as of floral propagation are possessed of a delicate 
discrimination, a prudent forecast, and a virtuous conti- 
nence, which shame the most cautious calculations of the 
reason. They may err somewhat, and that, too, within lim- 



456 CONSUMPTION. [book V. 

its which allow much deterioration of the species, and much 
local misery ; but their conditions restrict them within the 
bounds of life. 

"What these circumstances are which control the increase 
of population, we shall not discuss at this point. 

3d, The third fallacy we detect is, that, granted the two 
postulates of stationary subsistence and advancing popula- 
tion in any country, there is any necessary relation of dis- 
tress and deterioration between them. Such a view puts 
commerce out of the question. In the present state of the 
world, the only matter of interest to determine in regard 
to the supply of any people is, whether they are able to 
produce values sufficient to command in exchange the com- 
modities they must consume. It is of no consequence 
whether Manchester or Birmingham can raise their own 
breadstuff's within their corporate limits, if they can create 
values which will lay all the markets of the world under 
contribution. Labor, if law does not hinder, is self-sup- 
porting. The powers of industry are commensurate with 
their wants. But, if legal and social institutions interrupt 
or burden exchanges, in one way or another, distress will 
result. There is no fault in human propagation, but in 
what is subsequent. To illustrate: thirty years ago, there 
was great suffering among the poor of England. This gave 
rise to the very theory of population we are considering. 
It became a matter of common belief, that starvation was 
inevitable in human society. 

Now it used to be a generally accepted principle of phys- 
ics, that " nature abhors a vacuum ; " and much machinery 
was constructed on that principle. On one occasion, an 
experimenter happened to apply it to a tube longer than 
usual, when it failed to work. Rushing in great excitement 
to the office of a distinguished philosopher, he announced 
the catastrophe. " Perhaps," was the quiet response, — " per- 
haps nature does not abhor a vacuum higher than thirty-four 
feet." 



CHAP. XI.] POPULATION. 457 

Just such a discovery was made at this time in England. 
The corn-laws were repealed, and half the misery of the 
laboring class sank out of sight for ever. This it was 
which first led men to suspect that " nature did not abhor 
a vacuum higher than thirty-four feet; " that is, to drop the 
anecdote, that nature creates no human labor to be starved 
out of existence, but that whatever misery and suffering- 
there is, comes of man's folly and sin. 

In England, bad laws, passed by class legislation ; oppres- 
sive institutions, the relics of feudalism ; onerous taxation, 
incurred by the senseless war system ; and unjust monopo- 
lies, created for selfish purposes, — have combined to cause 
the ignorance, poverty, and degradation of the people, and 
to make the beneficent agencies of reproduction a partial 
curse. The laborers of England suffer for the commonest 
necessaries of life, while England is the richest nation on 
the face of the globe. Unquestionably, the value of the 
total production of English industry amounts to five times 
the value of the simple necessaries of life for her whole 
population. Now, if labor starves, is it the fault of nature ? 
The density of population has nothing to do with it. It is 
because the common people have so little influence on the 
government ; because the land is held for the pleasures and 
dignity of the lordly few ; and because the national majority 
is borne down by a powerful, selfish, and grasping aristoc- 
racy. Though the people suffer, it is because of nothing in 
the extent or fertility of their soil. But for a complicated, 
legalized system of robbery and wrong, every man, woman, 
and child in the United Kingdom might be as well fed, 
clothed, and educated, as are the inhabitants of the United 
States, and as much more so as England is to-day richer. 
Any man and any people that can create value can com- 
mand subsistence in God's way. 

If now we extend our inquiry from England to the whole 
industrial world, we shall bring another element into the 
calculation, not to increase the chances of distress by over- 



458 CONSUMPTION. [book v. 

I io| dilation, but to diminish them. Whatever may be true 
of individual peoples at any particular time, the general 
advance of population all over the earth has not been very 
clearly proved. But, whether it has taken place from cen- 
tury to century or not, it certainly has not progressed in 
the last five centuries at so rapid a rate as the means of 
subsistence; nor is there any ground for believing, that 
the present advance will, the world over, continue when the 
means of subsistence shall become stationary. There never 
has occurred a case of starvation in the history of the world 
which resulted solely from a deficiency in the natural means 
of procuring food ; and there is no reason to believe that 
there ever will be one. There have been countless millions 
of deaths from hunger occasioned by the destructiveness, 
envy, or heedlessness of man, through war, commercial 
restrictions, or personal neglect. 

We have spoken of the forces which limit population. 
We shall not assume to express them all, or to give an 
exact measurement of them ; yet we shall be able to state 
enough to show what is the course of nature in this matter. 

1st, Subsistence. — We do not mean any thing so common- 
place as that there can be no more population than there is 
subsistence to maintain in life. That, of course, could not 
be. But it might be avoided in two ways, — by death operat- 
ing on population, or prevention operating on propagation. 
We mean that the ultimate bounds of food are the bounds 
also of reproduction. At the last resort, and after its own 
extreme limit has been reached, subsistence limits growth. 
This, however, is only because to the impulse of the latter 
is opposed an unyielding prohibition in the former; and 
even this may only be effected (so far as the operation of 
this principle is concerned), the springs of population may 
only finally be dried, after a long and painful process : 
after the comfort and health of the laboring classes have 
been greatly, it may be permanently, reduced by contin- 
uous privation and hardship. So long as population can, 



CHAP. XI.] POPULATION. 459 

so to speak, induce subsistence to increase, so long it may 
itself increase ; and it is only when the latter returns a 
positive refusal that the former begins to check itself. In 
the interval of adapting itself, i.e. before it can hold up, 
there may result much misery and crime. So long as the 
increase of capital, i.e. food, clothes, and shelter, for the 
laboring class, is possible, the natural advance in the wants 
of the community, coming out of growing numbers, will 
determine a still larger share to reproductive consumption ; 
will call off more and more from play to work. The causes 
that increase population, all other things being propitious, 
are positive and powerful, and will not yield to any feeble 
or distant objection from subsistence. So long as more 
capital can be taken up, they will continue to operate, and 
wealth must conform itself accordingly. But, when capital 
can go no further, propagation must stop, or population will 
starve. The former will be found to occur. It does not 
matter by what degrees of cold, hunger, feebleness, over- 
work, this is effected. Nature secures the result. "We 
are no more bound to show how it is brought about than 
how it is that lions and elephants are not found on islands. 
Nature has discrimination and proportion in her work, and 
it takes all the recklessness and folly of man to bring about 
the least degree of distortion. 

Destitution is, of course, a relative term. Perhaps, as a 
general condition, it is found mainly among savage tribes, 
which subsist on spontaneous productions or the captures of 
the chase. This is the limited state, and here the increase 
of population is very slow. Such has been the case with the 
North-American Indians, who, as we are told by Dr. Robert- 
son and others, rear seldom more than two children to a 
family, and often none. We must not confound individual 
with general destitution. It is not claimed, that the former, 
when abruptly occasioned, is sufficient to check propagation. 
That would be against nature and reason. Such is the first 
gross cause which limits population. 



460 CONSUMPTION. [book V. 

It only applies to peoples in the lowest condition of life 
and of the least moral endowment. Upon those of a higher 
scale of being other influences will he found to operate. 

2d, The second cause which we shall cite is directly the 
reverse of the first. It is luxury. How any one could ever 
have held the view that the forces of propagation are con- 
stantly operative, in the face of the experience of the Roman 
state, extending- over many generations, destroying even the 
name of nearly all its great families, calling for the earnest 
remonstrances of its rulers, censors and emperors alike, and 
forming the subject of repeated legislation both in premiums 
and penalties, we cannot understand. 

Luxury commences when trade and arts have been car- 
ried to a considerable degree of perfection. It is even a 
stronger check on population than destitution, though acting 
on a smaller class. Its artificial habits, its irregular occu- 
pations, its indolence, its self-indulgence, all combine to 
weaken the forces of reproduction. Rarely indeed would 
patents of nobility and entailed estates fall in, if committed 
to the inhabitants of the cottage rather than of the castle. 

3d, We have that class of influences which are found in 
vicious habits and unwholesome occupations. The sure 
results of these are to check propagation, a most beneficent 
provision of nature. In a marked degree is this true of 
those occupations which, by heated air, by poisonous exhala- 
tions, by cramping postures or excessive labor, dwarf and 
distort the functions of the body. The same causes most 
mercifully defeat the poAvers of reproduction. It is well 
that it should be so ; that, if these places must be filled, 
fresh life may be poured into them from the hillsides, 
rather than that the course of health and strength should 
lie downward without relief, falling faster every generation. 
For the effects of vicious courses, we need only cite those 
savage nations which, in every quarter of the globe, are dis- 
appearing so fast, not more by the pressure of civilization 
than by their own destructive habits. 



CHAP. XI.] POPULATION. 461 

4th, We have also that class of influences which come 
from misgovernment and war. These serve to retard the 
progress of population, though not necessarily to throw it 
backward. France under the old regime, England through 
her most sanguinary civil conflicts, still held on their way in 
wealth and numbers ; but Campania by excessive taxation, 
Belgium by religious persecution, Germany in the Thirty 
Years' War, Prussia under the great struggles of Frederick, 
fell off widely in both respects. It really seems too bad to 
quote, but many writers have ventured to suppose that war 
was God's own method of restraining population! The 
money spent in any war would, ten times over, support all 
the men killed in it; if, indeed, the destruction of the able- 
bodied could be supposed to take any thing from the difficulty 
of subsistence, especially when their helpless dependants 
remain. How the war-system affects population may be 
shown in an instance. Nearly half a million of young men 
in France are required to serve in the army from the ages 
of eighteen to twenty-five. This embraces the period at 
which the occupations of life are usually chosen, marriage 
contracted, and domestic habits formed. At the end of their 
service, they are thrown out on society with the vices of the 
camp and the restlessness of military life, with no position 
in life secured, and no occupation learned. The results have 
been plainly visible in diminishing from year to year the 
ratio of increase in population. 

5th, The fifth cause which we shall notice is altogether 
different in its origin and character. The others have all 
been on the brutal side of man, operating by misery and 
want. This works in alliance with the nobler part of his 
being, and is of a kind with reason. It is self-restraint. 
In a degree, indeed, a great part of the world exercises 
this. The Chinaman will rear as many children as lie can 
find vermin for as food ; but the Hindoo, through his reli- 
gious faith, stops short of all animal food, and limits 
population by vegetable subsistence. And so almost all 



462 CONSUMPTION. [book y. 

nations have a point of decency below which they will not 
go. But the self-restraint of which we speak is of a higher 
kind, and begins to operate before the senses revolt in dis- 
gust or pinch in hunger. It is found wherever there is 
self-respect and social consideration. Hence the moderate 
increase of many countries where population maintains a 
just proportion to the general wealth, taste, and customs. 
As this is a subject to which belongs illustration rather 
than analysis, we give at length a remarkable example, 
which will also enable us to set in contrast the operation of 
the other causes. We take the State of Massachusetts, 
of which, let it be observed, only a very small class is 
influenced by luxury, and a smaller class even affected by 
destitution. Vice, war, and misgovernment certainly work 
as little injury here as in any portion of the world. 

The annual registration, made with much care, shows the 
following result in regard to births among the native and 
foreign population in 1860 : — 

Native population, whole number of persons .... 970,952 

Foreign „ „ „ „ .... 260,114* 

Number of births in native population 16,672 

„ „ foreign „ . 16,138 

The number of births in the native population, to be in 
proportion to the foreign, should have been 60,239, or nearly 
four times the actual number. The difference is very strik- 
ing and suggestive. It may be accounted for in part by 
the following "considerations : — 

(1) A very considerable share of the foreign population 
consists of those under fifty years of age, and so generally 
able to contribute to the increase of population. How far 
this fact is operative may be seen in the statement, that, if 
all persons above fifty were removed from the native popula- 
tion, it would be diminished somewhat over one-sixth ; that 
is, brought so much nearer the numbers of the foreign. 
* Of these, 185,434 are from Ireland. 



CHAP. XI.] POPULATION. 463 

(2) The foreign population is engaged somewhat less 
than the native at in-door and sedentary employments, and 
in so far are likely to be more vigorous. 

(3) But the grand cause for the remarkable difference we 
have observed is found in the fact, that the foreign popula- 
tion are far less influenced by prudential considerations and 
social restraint. They therefore enter the marriage state 
with less regard to their ability to support a family respect- 
ably. Destitution, in the sense which restricts propagation, 
hardly exists among them. Indeed, it may be said that they 
are actually richer, according to the standard of living they 
were accustomed to at home, than are our native popula- 
tion. Consequently, they do not for a moment hesitate to 
marry from any fear of want or of losing caste by poverty. 

On the other hand, the resistance to marriage from a more 
costly style of living, is constantly increasing with the native 
population, among whom the standard of family expendi- 
tures rises rapidly with the finer culture, the more elegant 
arts, and the greater social vivacity of each new year. The 
foreign population can get food, shelter, and clothing of some 
kind. That is their idea of life. Why, then, should they 
not marry, and rear families? To show how this cause 
operates to produce marriage among them, we refer to the 
same statistics : — 

American marriages 7,381 

Foreign „ 4,057 

One party foreign >943 

Nativity not stated >447 

Total 12,828* 

* Of deaths in Massachusetts the same year, we find that the whole 

numher was 23,068 

Of which were American 19,404 

Foreign 3,381 

Nativity not stated 283 

23,068 

Here we see that the mortality of the native population exceeds that of 
the foreign, comparing their respective numbers. So that, while we attribute 



464 CONSUMPTION. [book v. 

According to population, the purely American marriages 
should have been about 18,000, or considerably more than 
twice the actual number. Here we find the force of social 
restraint acting on the native population. 

Such, then, are the principal causes which limit popula- 
tion. The course of propagation, as affected by subsistence 
alone, may be described as follows : From a given point des 
titution will bear it down by the most painful pressure, 
involving social and individual misery and degradation. 
Under a scant and difficult livelihood it will bear upward 
by its inherent forces, but slowly and with constant opposi- 
tion. Competence gives it an assured and regular course ; 
relieving from all considerations of physical maintenance, 
but substituting therefor healthful and harmonious re- 
straints, hardly less powerful. Under these influences, 
society gains in wealth, leisure, and comfort, and is able to 
organize, educate, and control its population. Every child 
born into this condition may be born to health and happi- 
ness, and to be a strength and ornament to the state. 
Luxury may now enter as an element (though luxury, in 
the degree to affect population, is not a necessary concomi- 
tant of wealth and culture), and, as such, will either reduce 
the rate of increase from that of a condition of competence, 
or, by becoming excessive, it may bring population down 
with great rapidity. We have, then, these three grand condi- 
tions which limit the propagation of the race, of which two 
can only operate, by debasing and perverting the bodily 
powers of man ; the third adds to his dignity, secures his 
physical well-being, promotes industrial activity, and estab- 
lishes the state. There can be no question towards which 
the effort of the moralist and teacher, or the sanctions of 
the statesman and jurist, should be directed. 

to the latter a greater proportion of marriages and births, we find them falling 
off" in mortality. And what is true of Massachusetts probably holds true 
throughout the United States. Of course, this diminished mortality is in part 
accounted for by the fact before remarked upon, that their aged and feeble 
members were left at home when the emigration took place. 



CHAP. XII.] RIGHT CONSUMPTION. 465 

We have thus far spoken of the reproductive forces with- 
out recognizing the differences originating in diversities of 
climate and ethnical stock. These unquestionably exist, 
and greatly modify the facts of propagation ; but, as they are 
local and peculiar, we shall enter upon no discussion of 
them. 



CHAPTER XII. 

IMPORTANCE OP A RIGHT CONSUMPTION. 

This has been already shown by the light of our definition 
of consumption. It has all the importance which belongs 
to the science itself. 

Consumption makes use of the wealth which production 
has brought about with all the world's industrial energy. 
It determines how each appreciable atom shall be applied : 
whether to degrade, or to elevate ; whether, like fruitful 
seed, to re-appear in harvest, or, like a virulent acid, to 
destroy the very vessel in which it is placed ; whether to 
set forth the humble household of the laborer, or to gleam 
a moment in the halls of revelry ; whether to feed a thou- 
sand workmen on the temple of national industry, or to 
melt out of sight, like Cleopatra's jewel, in wanton luxury. 

All the moral and social interest that belongs to wealth, 
belongs to its use ; for as that is right or wrong, healthful 
or hurtful, so wealth itself is a blessing or a curse ; so sci* 
ence should strive after it with earnest efforts, or guard 
against with the same wise precaution and thorough research 
which keep out the plague. 

There is a right consumption of wealth that would bring 
comfort, health, and education within the reach of every 
human being not born incapable of receiving them ; that 
would make poverty impossible on the earth ; that would 

30 



466 CONSUMPTION. [book v. 

dispense with half the inducements to crime ; that would 
beautify every home, and lighten every work. It may not, 
be wise to expect the quick attainment of such a result, or 
worth while to prepare our robes for such an ascension of 
humanity ; but just as far as the consumption of wealth can 
be affected by human laws, or customs and agreements, in 
so far may this end be approached in every day of time. It 
is only one part of this possibility at which the poet looked, 
when he said : — 

" Were half the power that fills the world with terror, 
Were half the wealth' hestowed on camps and courts, 
Given to redeem the human mind from error, 
There were no need of arsenals and forts." 

The mind can hardly lift itself to see — 

" What might be done, if men were wise." 

Yet political economy is a " dismal science," indeed, if 
we cannot look on to the gradual amelioration of our human 
condition, not by miracle from the earth or the air, but by 
a wiser use of wealth, for kind purposes created and be- 
stowed, — 

" AH slavery, warfare, lies and wrongs, 
All vice and crime might die together ; 

And wine and corn, 

To each man born, 
Be free as warmth in summer weather." 

Not only does all the advantage of present or accumulated 
wealth depend on the use made of it in consumption, but 
the very existence of future wealth is decided on the same 
ground. 

We have said that wealth has its generations. The life 
of man is brief, but he outlives property. A few articles of 
value may endure for centuries ; but, in the average, their 
term is very short. Simply by wear and tear, the earth 
would be left destitute in a few years, if no provision were 
made for reproduction. Our kind is placed on the verge of 
such a chance, and can never go away from it. The dreary 



CHAP. XII.] EIGHT CONSUMPTION. 467 

desolation of many nations illustrates the tremendous pos- 
sibilities that lie in the use made of wealth. 

We are accustomed to things as they have been. It is 
difficult to appreciate even that which we know might be. 
There is no economical reason why every people on the face 
of the earth should not be rich, prosperous, and independ- 
ent ; every person free, comfortable, ambitious, with plenty 
at hand, and every thing to hope for. As it is, the homes 
of competence or decency are, the world over, hardly more 
than islands struggling up from the ocean ; a few spots re- 
deemed from misery and ruin. 

This advance towards economic good is not a piece of 
work to be paid for only when finished. If the grand result 
seems hopelessly distant, every step towards it does yet re- 
ceive its reward ; every effort brings something of fruition. 
No government or individual conforms, for a single act, to 
right principles of consumption ; but the community gains 
palpably by it: perhaps the "last straw" of taxation is re- 
moved, or a capitalist offers employment to a starving work- 
man. 

There have been efforts to restrict political economy, so 
that it should have no occasion to ask these questions ; to 
cut off all that view which looks out on the field of repro- 
duction ; to shut up our inquiries to the immediate, present 
creation of wealth, its exchange, distribution, and consump- 
tion, without regard to ultimate effects, and considering 
one article of value as equally commendable with any for 
which it will exchange. Such a mode of treatment prac- 
tically detaches the department of consumption from the 
science. 

A sagacious and generally correct writer* has even gone 
so far as to announce, " if a laborer is willing to work 
all day for a quart of whiskey to get drunk upon, political 
economy does not question his wisdom." 

It is, of course, within the discretion of any author to 

* Mr. Newcombe, in his "Financial Policy." 



468 CONSUMPTION. [book v. 

confine his inquiries so narrowly, and to erect them into a 
consistent system ; but such a system will have little of that 
interest which attaches to a scheme that considers the in- 
dustrial interests of man as a whole, and for all time. It 
may be a science of political economy, but not the science, 
as we choose to regard it. 

If the laborer expends his day's earnings on a quart of 
whiskey, he will, most likely, be disabled one day after. The 
account with society will stand, at the close of the second 
day, as follows : one day's work done, of which the employer, 
and consequently society, has the advantage ; no wages laid 
up ; something taken off the health of the laborer, and the 
order of the community. But if the earnings are spent on 
tools or the education of self and family, or on personal 
support, the account will read quite otherwise : two days' 
work done, of which the employer and society obtain the 
advantage ; two days' wages in the hands of the laborer, to 
be applied to the rearing of a useful and self-respecting 
family, to the maintenance of government, to the increase 
or perfection of tools, or to wholesome enjoyment and cul- 
ture. 

It is not, of course, possible, that, from a moral stand- 
point, there can be any question as to the importance of a 
right consumption ; but does not the same interest attach 
to it in the light of political economy, considered merely as 
seeking to effect the largest production, and the most bene- 
ficent distribution of wealth ? "We do not ask whether such 
inquiries cannot properly be received into the science, but 
whether any scheme can be respectably complete which does 
not embrace them. It must not, of course, look at any 
question in a purely moral light. Yet the two interests will 
not be found widely and permanently apart. Political 
economy has for its end the economic good of society on the 
whole, and in the long-run. It does not limit itself to 
taking a section of the trunk. It is content with nothing 
but the whole tree, and alive at that. 



CHAP. XII.] EIGHT CONSUMPTION. 469 

We have used a phrase which explains itself, and which 
has already received various illustrations in what has gone 
before. But it may be worth while to fix and detain in 
positive shape the general impression we have of it. 

WHAT IS THE ECONOMIC GOOD ? 

It is that application of the industrial faculties to the 
agencies of matter which will bring out, easiest and fullest, 
the satisfaction of those desires which are healthful and 
harmonious in the nature of man. 

Does this imply the satisfaction of the greatest amount 
of desires, if, indeed, they can be thus spoken of in aggre- 
gation ? Not necessarily, by the terms of our definition ; 
yet practically we believe it is true, that, 'taking in all of 
life and the whole of society, a greater satisfaction will be 
obtained by ministering to those desires which are natural 
and reasonable, than by catering to artificial tastes, depraved 
appetites, and violent passions. 

Does it imply the greatest possible creation of values ? 

Again we say, not necessarily ; and yet it is undoubtedly 
true, that there is no surer way of securing the best satis- 
faction of the greatest amount of desires, than by striving 
for the accumulation of the largest possible wealth. There 
may be, will certainly be, a portion of such wealth that does 
not tend to improve its possessor, either as to character or 
condition ; there will be a portion that will not receive its 
best application, either morally or economically, just as the 
nourishing rain falls not less on the streams that do not 
need it, and on the stony ground that will not profit by it, 
than upon the grass and the grains that are thirsty for it, 
and will repay it in a plentiful harvest. But this is the way 
of earth. If human laws and institutions do not interfere 
to prevent, the natural order of things will be sure to bring 
out the best physical condition of mankind, through the 
greatest creation of values. 



470 CONSUMPTION. [BOOK V. 

It will be observed, that this definition of the economic 
good requires an equitable distribution of wealth, since the 
desires of one can be but poorly satisfied out of the posses- 
sions of another. We should therefore regard with more 
complacency a certain amount of values, fairly divided, than 
a much greater amount heaped in wasteful and unjust ag- 
gregations, or bestowed on those that can neither employ 
nor enjoy it. But this, again, we leave to the operation of 
natural laws, when undisturbed by legislation and prescrip- 
tion, confident that a better state of things will result than 
can be brought about by man's wisdom. 

To sum up, then : Although much may be produced that 
does not satisfy any wholesome or lawful desire of man's 
being ; although much inequality and injustice may take 
place in distribution, which shall so far neutralize the bounty 
of nature, and the industry of man ; and although the 
greatest wealth is not logically coincident with the highest 
economic good, — we can yet accept the former as the end 
and aim of our science, satisfied it is in this shape that the 
latter is to come to us. 



APPENDIX. 



APPENDIX. 



GOLD. 

As a commodity. — California as a gold-producing State. — Bise and 
progress of the gold premium in the United States. — Tables and 
diagram. — Causes of fluctuations in the premium. — Influence of 
gold on prices. — Effects of gold discoveries on trade with India and 
China. — Tables. — Cold mining in relation to national indebted- 
ness. — General production as influenced by an increased production 
of gold. — Conclusions. 

AS A COMMODITY. 

Gold has often been referred to in the preceding work. Its use as 
currency, and its position in the commerce of the world, have been de- 
scribed ; but its importance in both these relations is so great, and the 
changes that have taken place in regard to its production and use are so 
remarkable, that a farther and more critical examination of the subject 
seems desirable. 

Under the term " gold, 1 '. in the following discussion, we shall, when 
speaking of its connection with the currency, include silver, its less valu- 
able, but not less useful companion. Both are subject to the same laws ; 
and, though they may differ in value in relation to each other, yet, as 
forming together the medium of circulation, and the standard of value 
amongst the nations of the earth, they can be placed in the same category. 

We propose first to speak of gold as a commodity, like lead or iron. 

The value of gold is determined by the established law of supply and 
demand ; its cost, by the labor required to. produce it. 

No more interest attaches to gold than to iron, regarded merely as a 
merchantable commodity, nor, in fact, so much, in the economy of pro- 
duction, since the latter has ten utilities to where gold has one ; and, as 
necessary to human progress and welfare, iron may be regarded as a 
hundred times more indispensable than gold. Each has its proper place 
in the economy of the world. 

Gold has no price, because it is price itself. 

In the constitutional currency of the United States, gold of standard 
fineness always has one price. It can have no other ; Congress having or- 
dained, that 25 T 8 ^ grains of gold, nine-tenths fine, shall be a coin called 
a dollar, and the people having accepted that as the unit of value. Sup- 
pose, therefore, that the California miner produces one hundred pounds 
weight of gold : is there any question as to what the price of his gold will 



474 APPENDIX. 

be? Not at all. It is worth as many dollars as 25 T 8 ^ grains, of standard 
fineness, are contained in the hundred pounds weight. Its value is fixed 
beyond any possibility of change. It measures its own value. The 
miner can get just so many dollars, and no more. 

If the currency of the United States consisted exclusively of coin, — 
that is, gold notes, or certificates for coin deposited, — the producer of 
gold would be absolutely certain of obtaining the full value of his com- 
modity, because all other commodities would be measured by his own. 
There could be no chance for any mistake in the case. He would be 
certain of justice in exchanging his gold for any article he might wish to 
purchase. 

If instead of this, however, the government should authorize the issue 
of promises to pay gold, instead of the gold itself, and allowed these 
promises to be issued beyond the amount of specie held for their redemp- 
tion, the case would at once be greatly changed ; and, when the miner 
came to exchange his gold for commodities measured by this vitiated 
standard, he would receive a less quantity than was rightfully his due. 

POSITION OP CALIFORNIA AS A GOLD-PRODUCING STATE. 

We perceive, from what has been said, how disadvantageous to Cali- 
fornia must have been the mixed-currency system of the United States, 
even prior to the war. Her gold, which cost labor and had actual value 
was placed upon a par with the paper currency of the banks of other 
States, which cost no appreciable labor, and whose value, in consequence 
of its redundancy, was less than it would have been if it only equalled 
the specie held for its redemption. 

How great per cent this loss was, it is«difficult to calculate with precis- 
ion ; but it must have been considerable, — sufficient to make an impor- 
tant difference to a State whose great staple was gold. 

Prior to the Rebellion, the actual loss to the people of the gold-pro- 
ducing State was not so striking as to attract general attention. A few 
persons, who bestowed careful attention upon the subject, discovered 
very clearly the unfavorable influence of a mixed currency upon the 
pecuniary interests of California ; but the masses were unconscious of 
the extent of the injuries they suffered. 

The war, however, brought the whole matter out in bold relief, after 
the suspension of specie payments by the government and banks, and 
the simultaneous act of Congress, by which treasury-notes were made a 
legal tender. 

California, in accordance with a provision in her Constitution, had an 
exclusively metallic currency. The 35th section of that instrument pro- 
vides that " the Legislature of this State shall prohibit by law any per- 
son or persons, association, company, or corporation from exercising the 
privilege of banking, or creating paper to circulate as money." 



APPENDIX. 475 

To protect herself against the depreciated currency of the United 
States (the greenbacks), the Legislature of California enacted, April 
27, 1863, a Special Contract Law, one section of which provided, that, 
"in an action on a contract or obligation in writing for the direct pay- 
ment of money, made payable in a specified kind of money or currency, 
judgment for the plaintiff, whether the same be by default or after ver- 
dict, may follow the contract or obligation, and be made payable in the 
kind of money or currency specified therein." 

Under this law, the busirfess of the State has been conducted to the 
present time (1867), and doubtless will continue to be so, until the legal- 
tender notes of the national government are restored to their par value 
in gold. 

Greenbacks, up to this time, have been sold in California at their 
value in gold; while, in other States, the gold has been sold at its value 
in greenbacks. 

By this arrangement, a great part of the injustice and wrong to which 
the people of other States have been exposed, has been saved to the 
people of California. 

But the State has still suffered very great injustice in her connection 
with the general government as one of the States of the Union ; because, 
although, as between her own citizens, justice was secured, yet, as be- 
tween them and the citizens of other States, she had no remedy. She 
must purchase commodities which were manufactured or created in 
other States, under an inflated currency, at prices double their true 
value. She must receive all her imported goods, whether brought di- 
rectly to her own market or through the ports of other States, subject 
to the duties imposed by the general government, and saddled with the 
premium on gold, and the profits charged on that 'premium, by the im- 
porters and others, through whose hands the goods might pass. The 
aggregate loss to this gold-producing State is undoubtedly very great. 
If the State has produced, up to this time (October, 1867), one thousand 
millions in gold, as is nearly the fact, and has lost upon the whole, in 
consequence of the use of mixed currency in the Union with which she is 
connected, but fifteen per cent, the aggregate would be one hundred 
and fifty millions ; a heavy loss for a young State encountering all the ex- 
pense and hardships incident to the first settlement of a country. This 
loss has been estimated at a much greater sum by one of her own citi- 
zens, John Alexander Ferris, Esq., in his "Financial Economy of the 
United States Illustrated," published in San Francisco and New York, 
1867 ; to which able work we would refer our readers for a full view of 
the subject in its various bearings. 

From the foregoing statement, it will be seen, that an antagonistic 
interest has been created between the gold-producing and non-gold-pro- 
duciiio- States which will be likely to terminate in a struggle between the 



476 



APPENDIX. 



parties. The antagonism is absolute and irreconcilable, and must con- 
tinue until the difficulty is removed ; and that only can be done by the 
withdrawal of the false currency. 



RISE AND PROGRESS OP THE GOLD PREMIUM. 

The national treasury and the State banks having suspended specie 
payment on the 31st day of December, 1861, a premium was immediately 
demanded upon gold. It was slight at first, — the highest point for some 
months but about five per cent. After the 1st of July following, it began 
to rise rapidly, until, before the close of the year, it had advanced to 37£ 
per cent. From that time forward, the fluctuations were rapid, and often 
violent. We give below, from the " Bankers' Magazine" of April, 1867, 
a table showing the monthly prices for five years. 

The Monthly Range of Premium on Gold,, from January, 1862, to December, 1866, 
has been as folloivs : — 



January 

February 

March 

April 

May 

June 

July 

August 

September .... 

< (ctober 

November .... 
1 December .... 

Average 

„ for 6 years 



1862. 



Par@ 5 
24 @ 4} 

ij <<: 2j 

1J „j 2] 

n@ 44 

H@ 94 

!» ,,/' 20; 

m.». io] 

16. 1 , ( «) 24 

22 a 87 

29 @33£ 

::o ,< 34 

m 



1863. 



34 («■ iW'l 
53 „/. 72' 
39 @71$ 

46 @59 
43i @ 65 
40. 1 («) 48J 
231 @ 45 
22J «>-J!i» 
27 @43J 

•l:r „> ;.(. L 
43 @54 

47 ( ffi 52^ 
46£ 



1864. 



514® 


60 


574 @ 


61 


59 


,«. 


68$ 


66 


■® 


87 


68 


( «. 


90 


89 


(«> 


151 


122 


(a- 


185 


131' „, 


162 


85 


W 


155 


89 


@ 


129 


Kill 


@ 160 


111 


;n 111 




103, 





1865. 



974 @ 1344 
96|@116| 
484 @ 101 
44 @ 60 
28} @ 45£ 
35|@ 47} 
38 @ 46| 
404 @ 45} 
42 § @ 45 
44 @ 49 
454 @ 48} 
44i @ 46| 
" 58 



1866. 



36$ @ 44} 

35 J, „• 41* 
25 @364 
25 @ 294 
254 @ 41* 
37:: »;67j 
484; @ 55$ 
46i @ 524; 
44 @46$ 
45} @ 54} 
374 @ 48} 
31| '" 41$ 

41$ 

524 



The average, from July 1, 1862, to 1865, the three years when the war expen- 
ditures were largest, was 68$ per cent. 

Table showing the extreme Quarterly Fluctuations of the Gold Premium, as exhib- 
ited in annexed Diagram. 



Years. 


Currency. 


Premium. 


Average. 






1st Qr. 


2d Qr. 


3d Qr. 


4th Qr. 




1862 


470 Millions. 


4} 


1} 


20} ' 


374 


1 5. \ per an. 


1863 


850 


724 


404 


234 


57 


48i „ 


1864 


1070 „ 


70 


66| 


185 


89 


1024 „ 


1865 


1159 „ 


1344 


284 


464 


49 


64 „ 


1866 


1358 „ 


25 


67 


44 


544 


474 „ 


1S67 


1300 „ 


40 


35 


464 







General quarterly average of premium, from 1862 to 1865 inclusive, as per the 
above table, 554.* 

An illustration of this table is given m the annexed diagram. 

* For a complete view of the daily fluctuations in gold premium, we refer the 
reader to Gold Chart, issued by Ernest L. Meyer, published in New York in 1865. 



3P9 



Showing /he extreme quarterly fh/ctriof/o/ts- in gaff/ 
from JanJi c . /S62 7o OctlSGT. 



Premium 
per Cent. 

\85 

ISO 
17.) 
170 
165 
L6Q 
155 
150 
14*5 
140 
155 
L50 
125 
120 
115 
110 
105 
100 

95 

90 

S5 

so 

75 

70 

65 

60 

15 

50 
!..> 
1.0 

35 

30 

25 

20 
15 

10 
5 



L 8 6 4 



-18,6 3- 



18 6 2 



-, <; i r ~L- 



18 6.'? 



Gold 

/ J ren/ftn/t 



1 8 6 6 



JMIMIL. 



IS 67 



S.JOM//. 
1 S 6 5 



/070M/TA 1 S 6 5 
1 8 6 1 



CurrencT. 



Ftemium 
perCent. 

1ST 

180 

175 

170 

_165 

160 

155 

150 

145 

140 

155 

150 

125 

120 

115 

110 

105 

100 

.95 

90 

. 85 

80 

75 

70 

_ 65 

60 

55 

50 

45 

1.0 

55 

50 

25 

20 

15 

10 



18 6 7 



J70JM/. 
I S62 



APPENDIX. 477 



THE CAUSES OF FLUCTUATIONS LN THE GOLD PREMIUM. 

Gold, when measured by itself, — that is, by the universal commercial 
standard of value, — can never command a premium. It is always pre- 
cisely at par. Premium, as a term applied to gold, simply expresses the 
depreciation of the standard by which it is measured, and is more prop- 
erly a discount on the latter than a premium on the former. It is 
customary, however, to speak of the premium on gold, without reference 
to the standard by which it is measured. 

The gold premium, as it has existed in the United States since 1862, 
may be said to have been influenced by six different causes : — 

1. The Inconvertibility and Redundancy of the Currency. — The moment 
a currency becomes inconvertible on demand, gold will command a pre- 
mium. The banks and national treasury having suspended on the 31st 
December, 1861, for the first four months of 1862 the premium on gold 
averaged only about three per cent ; and, had there actually been at that 
time no larger amount of currency than would have existed if the cur- 
rency were a wholly metallic or certified one, the premium would not 
have gone beyond three to five per cent : but the currency was at this 
time somewhat redundant, and was rapidly augmented, until 200 per 
cent above its natural volume. 

2. A second cause, or element, ivas the discredit of the Oovernment. — 
From the first, there was some fear that the Rebellion might succeed. In 
that case, the Union would be broken up ; and whether the loyal States 
would go on together, or separate into several different confederacies or 
nationalities, was a matter of great uncertainty. Therefore a large 
degree of suspicion attached to the promises of the government, and the 
public credit fluctuated with the fortunes of the war. 

At times the national credit was exceedingly depressed : as, for ex- 
ample, during the first three months of 1863, subsequent to the disastrous 
events around Fredericksburg ; and again when Pennsylvania was 
invaded, just prior to the victories of Gettysburg and Vicksburg ; and, 
lastly, in the gloomy winter of 1864, and during General Grant's cam- 
paign against Richmond, fighting the battles of the Wilderness, Spotsyl- 
vania, Cold Harbor, &c. This discredit was at times so great as to 
cause large shipments of specie to Europe, for safe keeping, by those 
who did not dare to trust their funds at home. This may be seen in the 
excess of exports over imports in the years of 1863 and 1864, and the large 
amount of gold exported in those years {Financial Report, 1864, p. 273). 
That this discredit of the national securities arose from the uncertainty 
of the manner in which the war might terminate, is proved by the rapid 
and permanent decline of the gold premium as soon as the rebel armies 
had surrendered. 

3. Political Movements. — The success of the party in opposition to the 



478 APPENDIX. 

war, in the elections held in the fall of 1862, had much effect ; and the 
gold premium went up from 37£ in October, to 72 in February following. 
The public anxiety was increased by the dilatory action of Congress in 
the session of 18G2 and 1863, which did not pass the Appropriation, 
Loan, and Currency Bills until the 3d day of March, or the day before 
its expiration. 

But the most instructive and remarkable fact connected with the action 
of Congress was the passage of the Gold Bill, so called, "prohibiting 
the sale of gold in certain cases." This law was intended to stop the 
sale of gold as far as possible, especially to prevent speculation in gold. 

The result was what all intelligent men confidently predicted. The 
premium advanced with great rapidity, from 97 on the 17th of June, 
1864, the day the bill was passed, to 180 on the 1st of the next month. 
Although Congress soon discovered its error, and made haste to retrace 
its steps, repealing the mischievous law on the 6th of July, great 
damage accrued to the national credit, and the interests of the country 
generally. 

4. The Operations of Treasury Department. — We will first refer to 
the condition of the treasury in the second quarter of 1863. Congress 
had, during its session closing March 4 of that year, placed in the 
hands of the Secretary of the Treasury power to issue bonds, compound- 
interest notes, and greenbacks, — in all, with what he had on hand, 
$1,200,000,000. This raised the credit of the government. The 5-20 
bonds at six per cent sold with wonderful rapidity ; and the premium on 
gold, which at the adjournment of Congress, on the 4th of March, 
was 65, fell to 40. The victories of Gettysburg and Vicksburg carried 
the premium down to 23| during the month of July following. The sale 
of the 5-20's having been made so successfully, the minister of finance 
changed his policy, and instead of issuing his 10-40's at six per cent, as 
he had been authorized to do, reduced the rate to five per cent. 

This proved a disastrous experiment. The sale of bonds fell off at 
once from two millions per day to only a tenth of that sum. But that 
was not all, or the worst : for, by reducing the rate of interest from six 
to five, the Secretary virtually depreciated his own currency by the dif- 
ference, because it required $1.20 in greenbacks to purchase an equal 
income or interest at five per cent, which $1.00 would purchase of bonds 
bearing interest at six per cent ; and consequently the gold premium 
rose 20 per cent. This falling-off in the sale of the bonds necessitated 
the issue of legal-tender notes, which raising prices greatly increased 
the expenses of the government. 

Then, again, the Secretary had authority to issue four hundred million 
dollars in compound-interest notes at six per cent, of such denomina- 
tions as would be adapted to the wants of the government in paying off 
the troops and contractors. These, if thus issued, it was believed, and 



APPENDIX. 479 

as subsequent events proved, would be speedily hoarded; and thus, 
while they did not expand the currency essentially, inflate prices, or in- 
terfere with the sale of the bonds, would operate as a six per cent loan 
to the government, payable in currency. But the Secretary took a dif- 
ferent course from the one intended by Congress. He issued fifty mil- 
lion dollars at five per cent on two years, in fifty-dollar notes and 
upwards. 

These, all or mostly, went directly into the banks of Philadelphia, 
New York, and Boston, where they displaced and drove into circulation 
fifty million dollars of greenbacks and bank-notes. This, it will be seen, 
instead of benefiting the treasury, absolutely made matters worse, ex- 
panding the circulation and raising prices, when government was 
making purchases at the rate of one or two millions per day ; so that, 
notwithstanding the brilliant successes in war just referred to, gold be- 
fore long went up to 100. Of the six per cent compound-interest notes 
adapted to circulation, the Secretary issued none for some fifteen months 
after he was authorized to do - so, and then only fifteen million dollars. 
These were paid out by the government, and were immediately hoarded. 
They disappeared at once, showing most conclusively that they answered 
precisely the object sought to be obtained by the issue of them. More 
of these compound-interest notes were subsequently issued by Secretary 
Fessenden. But they were of large denominations, and went mostly 
into the banks, where, contrary to law, they were held as a legal-tender 
reserve ; and in so far the design of Congress in authorizing their issue 
was utterly thwarted. Had the whole amount authorized been issued 
promptly, as fast as they were wanted to pay the current expenses of 
government, the necessity of issuing greenbacks would to a great 
extent have been avoided ; and such an enormous rise of premium and 
prices as took place in 1863-4, in consequence of their excessive issue, 
would have been prevented. 

5. Sales of Gold by the Secretary of the Treasury. — But, as another 
and very important matter, we must notice the direct operations of the 
Secretary of the Treasury in the gold market. 

Owing to the fact that the gold received for duties amounted to a 
much larger sum than necessary to pay current interest upon the bonds 
issued, the treasury had a large amount at its disposal; so large, that 
if the Secretaiy were disposed to enter the market, in technical language, 
as " a bear," he could to a great extent determine what the price of 
gold should be at any given moment. He was authorized to sell gold, 
and has done so ; holding, as he has oftentimes done, fifty to seventy-five 
millions, he has been able to bear down the market below what it would 
be if there were no such vast accumulation at his disposal. It would 
seem, by his acts, that he has deemed it for the public interest to keep 
the price of gold as low as possible. This being understood to be the 



480 APPENDIX. 

Secretary's policy, of course no one dares operate, to any great extent, 
"for arise," because his movement could be easily frustrated. 

Notwithstanding all this, however, the price of gold has been gradually 
advancing from its low point of about twenty-five per cent in March, 
April, and May, 1866, to forty-five per cent at the present time (Sep- 
tember, 1867). And the last we believe to be nearly its natural value, as 
measured by our superabundant currency. 

6. Speculation. — Another cause of variations in the gold premium 
arose from the action of speculators. 

History probably affords no parallel upon so extensive a scale of op- 
erations. Millions were made or lost in a day in New York, the great 
centre, by fluctuations in the market, occasioned often by the acts of. 
speculators themselves, combining to raise or depress the premium by 
starting rumors, favorable or adverse, as their particular interest might 
dictate ; yet as the premium, with various alternations, was constantly 
advancing, until it attained the well-known elevation of 185 per cent, it 
is obvious there were abundant opportunities for the realization of for- 
tunes by those shrewd enough to take advantage of passing events. But 
it should be remembei'ed, that speculation is to be mainly regarded as 
one of the natural effects of an abnormal state of affairs, incident to a 
forced credit currency, and the hazards and uncertainties of a long and 
doubtful conflict, rather than a permanent cause of high premium. 
There is little speculation now, because there is comparatively little 
uncertainty in regard to national affairs. The contingencies of war have 
passed by. 

Lastly, we may remark that the price of gold, like that of any other 
article, has been influenced by demand and supply : as, for example, 
when the article was especially wanted for export, or to pay duties ; or, 
on the other hand, when large amounts were paid off for coupons, or re- 
ceived from the mines. 

All these various considerations must be taken into account, if we 
would form a correct opinion of the causes which have had the effect to 
raise or depress the premium on gold for the last five years. 

INFLUENCE OF THE GOLD PREMIUM ON PRICES. 

Prices, since the suspension of specie payments, have been greatly 
influenced by the existing premium on gold. In the years 1863 and 1864 
especially, gold was potential in determining the price of commodities. 
They rose and fell with it. Since the close of the war, on the other 
hand, prices in general have been little affected by the gold premium, 
except in regard to foreign imports, which of course have corresponded 
in cost to the value of gold, because premium is an element of the cost. 
But other commodities do not feel these fluctuations, as during the war. 



APPENDIX. 



481 



Why not? Evidently, because domestic products, not required for 
export, are measured by the domestic currency alone. The reason why, 
during the years 1863 and 1864, all prices kept pace with the price of 
gold was, that, the currency and securities of the government being 
greatly discredited, gold was regarded as the really only safe investment 
and standard of value. Greenbacks were merely the promise of value, 
the fulfilment of which was doubtful. Gold had reliable value in itself, 
and therefore was largely hoarded, and, as we have seen, exported, in 
the two years just mentioned, to the extent of more than one hundred 
million of dollars. Except so far as foreign products are concerned, 
gold does not now (1867) influence the value of commodities in general, 
any more than flour, or any other article of merchandise ; for it is itself, 
under present circumstances, as truly merchandise as corn or cotton. 

EFFECT OF GOLD DISCOVERIES ON TRADE WITH THE EAST. 

The economical advantages derived from the increase in gold pro- 
duction, if there be any of much account, accrues mostly to the people 
of the East, — to India, China, &c. As they use coin exclusively, the 
surplus gold production of Christendom naturally flows off to them. By 
the unwonted influx of the precious metals, their products are advanced 
in value ; and, for all their exports to Europe and the United States, they 
get greater prices. As they export more commodities than they import, 
they receive the balance in gold and silver. 

From information furnished by a mercantile house in Boston, engaged 
in the India trade, we construct the following table, showing the price 
of seven of the chief exports of Calcutta, for the first five years after the 
gold discovery, viz. 1850 to 1854, inclusive ; and for the last five years, 
up to 1867. The prices are taken as they existed at the 1st of July of 
each year. We have before us the prices for the entire period of eighteen 
years, but give only the first and last five years, to save space. 



Prices of Seven of the Chief Exports of Calcutta, for five years, 1850 to 1854 
inclusive, and five years from 1863 to 1867 inclusive, showing the advance since 
the new gold discoveries. 



Gunny Cloth . . . 
„ Bags . . . 

Cow Hides ... 
Buffalo „ .... 


1850. 


1851. 


1852. 


1853. 


1854. 


1863. 


1864. 


1865. 


1866. 


1867. 


6 6 
3 10 
12 C 
2 9 
27 
39 
16 


6 9 
3 2 
9 14 
2 4 

30 
38 
9 8 


6 3 
2 9 
10 
2 4 

27 
37 
10 


6 6 
3 10 
12 2 
2 9 
27 8 
39 
16 8 


6 12 

3 10 

12 

3 3 

34 
46 
12 8 


8 8 
2 12 
16 8 
4 5 
35 
68 
21 


7 10 

3 
19 4 

4 6 
38 
68 
22 


6 

3 13 
15 8 

4 8 
36 
55 
17 8 


6 
4 5 
16 
4 10 
32 
50 
20 


5 2 

3 5 
14 4 

4 6 
32 
60 
21 


106 9 


99 5 


95 


107 11 


118 1 


156 1 


162 4 


138 5 


132 15 


140 1 





The currency in the above table is annas and rupees, — 16 annas to the rupee. 

31 



482 



APPENDIX. 



From this it appears, that the aggregate price from 1850 

to 1854, inclusive, five years, was 527 2 

Ditto 1863 to 1867, five years 729 9 

Difference 202 7 

which is equal to a rise in price, between the first five and last five years 
of the period, of 38.3 per cent. 

The same rise of prices is shown by the Report of the British Commis- 
sioners of Customs for 1865, as quoted by the United-States Revenue 
Commissioners in their Report, 1865-6, page 57, from which we construct 
the following : — 

Table, shouring the Average Price of Tea in Bond in London, from 1848 to 1864, 

inclusive. 





Average price of 




Average price of 


Year. 


Tea per pound 


Year. 


Tea per pound 




in bond. 




in bond. 




s. d. 




s. d. 


1848 


1 0J- 


1857 


1 Mf 

1 4| 


1849 


1 1 


1858 


1850 


1 8J 


1859 


1 6| 


1851 


1 2J 


1860 


1 6i 


1852 


1 0£ 






1853 


1 3| 


1861 


1 5 


1854 


1 3b 


1862 


1 7- 3 - 

1 '16 


1855 


1 3 


1863 


1 6ll 


1856 


1 2| 


1864 


1 6£ 



Taking the price in 1848, viz. Is. 0|<2., and the price in 1864, viz. 
Is. <o%d., the advance is forty-nine per cent; but, if we take the first five 
years of the time, it will average Is. \\d., and, for the last five years, 
Is. 6%d., equal to thirty-eight per cent advance. Other causes operating 
at the same time may have caused a part of this large advance in the 
merchandise of China and India ; but the enlargement of the currency 
throughout the Eastern world, by the shipment of specie from Europe 
and the United States, must have been the principal cause of such a large 
and regular advance in prices, uy The correspondence between the 
rise of Indian and Chinese commodities, as given in our tables, is very 
remarkable, and goes far to prove that both are affected by the same 
general cause ; viz., an increase in the volume of currency. 

This process seems destined to go on for a long period to come ; until, 
in fact, the equilibrium is restored between the hard-money countries of 
the East, and the paper and mixed currency countries of the West. 
The East will continue to receive bullion, and pay for it with a con- 
stantly diminishing quantity of their products. 

GOLD MINING IN RELATION TO NATIONAL INDEBTEDNESS. 

By many persons, the fact that there are within the United States 
deposits of gold supposed to be inexhaustible is regarded as adding 



APPENDIX. 483 

greatly to the stability of the national credit, inasmuch as these afford 
extraordinary facilities for discharging the public debt. 

But this can be true only on the supposition that gold mining is more 
profitable than other branches of industry, and therefore increases more 
rapidly the national wealth, and of course the ability to meet a heavy 
taxation. 

It matters not at all what kind of values are created ; it is only the 
quantity or amount that is important : the larger the amount, the greater 
the ability to pay off the national indebtedness. Therefore, if gold 
mining gives a greater income than any other branch of industry, it in 
so far increases the ability of the nation to pay off the public debt. 

Whether such is the fact or otherwise is a question not readily deter- 
mined ; but, until it is settled in the affirmative, we cannot decide that 
gold mining adds especially to the ability of a nation to pay its indebted- 
ness. A million dollars' worth of cotton or wheat goes just as far in 
paying the public debt as a million dollars 1 worth of gold. 

The vast deposits of gold in the West give to the United States, 
virtually, a new article for export. If the production of that article 
makes the aggregate industry of the country more profitable than it 
would otherwise have been, then the nation, in so far as this is true, is 
more able to discharge its public indebtedness, but not otherwise. 

But there is yet another view of the relation of gold mining to 
national indebtedness. Suppose that by the discovery of richer mines, 
or improved methods of mining, the cost of getting gold should be 
reduced one-half. In such, a case, gold would fall to half its present 
value ; that is, commodities would double in price ; and the farmer, for 
example, would get two dollars per bushel for corn, instead of one 
dollar, and could pay off his share of the national debt with one-half 
the quantity it would otherwise cost him. So of all producers. Although 
this is not likely to take place very soon, if at all, it is quite certain the 
tendency of things is in that dh-ection. This, however, is not a sufficient 
reason for postponing the payment of a national debt to a distant and 
uncertain future. 



DOES THE INCREASED PRODUCTION OF GOLD CAUSE ANY EXTRAORDI- 
NARY INCREASE IN THE PRODUCTION OP OTHER VALUES? 

The general impression is, that the opening of new and productive 
mines gives a great stimulus to industry, and, even more than this, that 
it imparts new life and activity to commerce, and rapidly increases the 
general wealth. 

If so, how, and why ? 

Let us look at the facts of the case. As soon as the discoveries in 
California and Australia were made, multitudes from all parts of the 



484 APPENDIX. 

world flocked to the mining regions. An immense amount of labor was 
at once diverted from various departments of industry to the new busi- 
ness. Capital to an enormous amount was invested in the same en- 
terprise. The whole trade and industry of the world was laid under 
contribution by the great movement ; and production, in all the countries 
from which the miners and capital were drawn, was of course, by so 
much, diminished. Neither the men nor the capital were unemployed 
before ; and now they only changed from one employment to another. 

Perhaps it may be said, that the business of mining was vastly more 
profitable than the ordinary occupations in which labor and capital are 
employed, and therefore there was a greater production of value, and 
therefore an extension of commerce by so much. But that is the point 
to be proved. It is disbelieved by those who have examined the matter 
most carefully, that mining has, on the whole and in the long-run, been 
more profitable than other industry. If every thing were taken into ac- 
count, it is uncertain whether there has been any extraordinary increase 
of general production in consequence of the new discoveries of gold. 

The question in this case really is, Has the grand total of those utilities 
which men desire, and which contribute to their welfare and happiness, 
been increased by the gold discoveries in California ? No doubt the 
wealth of the world, when reckoned in dollars, has been increased by 
these discoveries, because more dollars have been created, both metallic 
and paper; and those dollars have raised prices. But have the utilities 
of the world been multiplied in consequence of the increase of gold? 

About $1,500, 000, 000 have probably been added (from California and 
Australia) to the currency and bullion of the world. Of this amount, 
the United States has furnished an average of, say, about $50,000,000 
per annum from 1849 to 1867. 

The whole annual production of wealth, or values of every kind, in the 
United States, has been estimated as high as $4,000,000,000 per annum ; 
but, assuming it has averaged since the gold discoveries (1849) but 
$3,000,000,000, then the gold production has been just one-sixtieth of 
the whole production of the country, or exactly two per cent. We 
should presume this to be a large estimate of the proportion of gold to 
the sum total of values created in the United States annually. If so, we 
can see what the relative importance of gold-mining, as a branch of in- 
dustry, in the United States is. 

The proportion of gold production in the British empire is still less 
than with us. If this be so, we can make an aproximate estimate as to the 
proportion which gold-mining in Australia and California, as a branch of 
production, bears to the aggregate production of the world ; and we shall 
safely conclude that it is only a fraction of one per cent. 

But it may be urged in reply to all this, that gold-mining has created 
a large and populous State on the Pacific, which would not have existed 



APPENDIX. 485 

but for the gold discoveries, and caused a more rapid settlement of 
California (and the same may be said of Australia) than would have 
otherwise taken place ; but that does not prove that gold-mining enriches 
a State faster than other forms of industry. 

It is a pertinent fact, that the agricultural capacity of the country has 
been found so great, that cultivation rather than mining is fast becom- 
ing the most important industrial interest, and that the former may soon 
become the most extensive, because the most profitable, business in Cali- 
fornia. 

But it may be further urged, that ' ' there has been an unwonted ex- 
tension of commerce since the gold discoveries." Very true ; but so 
there would have been, had no such discoveries taken place. Steam 
travel and transport has been enormously enlarged within the same 
period (say the last seventeen years) ; immense regions of the East have 
been opened to the products and manufactures of the more civilized 
parts of the earth ; and, of course, a rapid extension of trade has taken 
place. 

GENERAL CONCLUSIONS. 

(a) Those nations that produce gold lose by all substitutes used in- 
stead of it, either by themselves or others. 

(6) Those nations that have no such substitutes gain in commerce all 
that is thus lost by others. 

(c) Every community that introduces any thing but gold or silver 
into its currency, violates the law of value, and disturbs the commerce 
of the world. 

(d) Other things equal, the industry of each country is effective 
just in proportion to the accuracy of the standard by which its products 
are measured ; that is, as it corresponds with the universal measure of 
value. 

(e) The peoples of the earth, collectively, gain little in utilities by in- 
creasing the quantity of the precious metals, so far as used as currency ; 
the larger quantity having no more power in exchange than the smaller 
one. 

(f) The gold-producer in any country is injured by the use of either 
mixed or credit currency in every part of the world, since every substi- 
tute for gold as currency diminishes the natural value of his product ; 
but he is more especially injured by its use in his own country. 

(g) When gold ceases to be the only legal currency of a country, it 
is demonetized, and no longer measures values. 

(]i) The general production of wealth cannot be essentially increased 
by additions made to the coin and bullion of the world. 

(i) Gold-mining no more increases the ability of a government to dis- 
charge a national debt, than any other branch of industry equally pro- 
ductive or profitable. 



486 APPENDIX. 



APPENDIX A. 

It may be objected to Table V., pages 177-8, that it does not give a 
fair representation of prices, because one of the articles included (mess 
pork) is so much greater in value than the rest as to decide the char- 
acter of the general result. We have therefore selected, from the same 
Financial Report (1863), ten other commodities, and present them in the 
following table, which, it will be seen, corroborates Table V., in that it 
affords the same general facts; viz., that prices rise and fall with the 
variations in the quantity of the currency. The commodities taken are , — 
Northern corn, per bushel ; anthracite coal, per ton ; Liverpool coal, per 
chaldron ; fish, per quintal; pig lead, per 100 lbs. ; sperm oil, per gall. ; 
tallow, per 100 lbs. ; mess beef, per bbl. ; lard, per 100 lbs. ; and clover- 
seed, per 100 lbs. These, it will be seen, present a fair average as to 
the amount of value in each. 

The result obtained from a table, constructed from all these, is as 
follows : — 

First six years, 1834 to 1839, the aggregate average 

price was $72.51. — Currency, $14.24. 

1840 to 1845, the aggregate average price was . . 52.97. — Currency, 8.69. 
1846 to 1S51, „ „ . . 54.08. — Currency, 10.23. 

1852tolS57, „ „ . . 69.77. — Currency, 14.49. 

The variations in prices, as compared with the quantity of currency, 
do not correspond exactly, as will be observed. This is owing to what 
has been noticed in the body of this work; viz., that, when currency is 
redundant, a portion of it is absorbed in discharging the larger volume 
of credit obligations, which an unnatural expansion gives rise to. 



APPENDIX B. 

SALARIES OF MINISTERS. 

Wishing to verify, in different ways, the truth of the principle which 
I laid down in 1854 (see "Merchants' Magazine," vol. xxxi. No. 2, 
and also stated on page 257 of this work), that " salaries and wages 
never rise so soon, or so much, as commodities, from an expansion of 
the currency," an invitation was addressed to clergymen, asking them 
what advance had been made in their salaries from 1860 to 1865. 
Information was received, in all, from one thousand ministers, of eight 
different denominations, residing in eighteen States, with salaries ranging 
from three hundred to five thousand dollars. From four hundred and 
fifty of these, the answers were so explicit as to present the following 
precise results : — 



APPENDIX. 487 

Average salaries in 1865 $907.28 

„ „ in 1860 772.38 

Average advance $134.90 

„ „ in gratuities 32.77 

Aggregate average advance in all $167.67 

Average advance in salaries 17.5 per cent. 

„ „ in salaries and gratuities . . . 21.7 „ 

From the remaining five hundred and fifty, the information was suffi- 
ciently definite to enable me to state, that the advance in the salaries of 
the one thousand ministers of the Congregational, Methodist, Baptist, 
Unitarian, Universalist, Episcopal, Presbyterian, and Lutheran, taken 
together, was not over twenty per cent. 

WAGES OF SCHOOL-TEACHERS. 

I 

The wages of school-teachers, in Massachusetts, Connecticut, New 
Hampshire, and Vermont, advanced, from 1860 to 1866, on an 
average, as follows : — 

Male teachers 37.5 per cent. 

Female teachers 26.0 „ 

Average of both sexes 31.7 „ 

The greater part of this rise was undoubtedly in the last year, as the 
returns from Massachusetts show, that, from 1860 to 1865, the advance 
was only 85 per cent for males ; for females, 9| per cent; average, 8.7. 
It is doubtful if the rise of teachers' wages, throughout New England, 
from 1860 to 1865, was equal to twenty per cent ; indeed, from the ex- 
ample of Massachusetts, it must be presumed to have been much less. 

The salaries of ministers and teachers have both been advanced, I have 
reason to believe, considerably since 1865, but not to half the extent of 
even the present advance in prices (1867) over those of 1860. These 
last two classes have suffered far more reduction of actual income, when 
reckoned in commodities, than laborers ; doubtless, for the principal 
reason that their services are not realized in vendible commodities, 
and, therefore, not so readily affected by the rise of prices, 

WAGES OF LABOR, 

An additional fact in point, in regard to the rise in wages, has been 
furnished, in the Report of the United-States Revenue Commission of 
1865-6, page 333 : — 

The cost of labor, per ton of 2,000 pounds of cast steel, delivered 

at Pittsburg warehouse, in 1860, was $45.07 

Cost of same in 1864-5 62.32 

Enhanced cost of labor $17.25 



488 



APPENDIX. 



equal to thirty-eight per cent advance in the price of labor ; while we 
know that the prices of commodities had advanced more than one hun- 
dred per cent. 

The Report of the Massachusetts Commissioners on the Hours of 
Labor, 1867, page 15, states that the wages of 39,216 operatives, in 102 
establishments, had advanced 63.2 per cent between the years 1860 and 
1865, inclusive. But they conclude, from information obtained from 
different employments, " that the average advance in wages, of all kinds 
of labor, throughout the State, is about fifty per cent" (page 16). 
Facts of this kind may be multiplied indefinitely, were there occasion 
for them. 

PRICES OF CERT ATN COMMODITIES. 

We here annex a table of prices in the Boston market, of seventeen 
different commodities, for four years, taken in the month of October of 
each year, as published in the " Boston Journal " of Nov. 16, 1865 : — 



Table, showing the Price of Sixteen Commodities in the Boston Market, from 1862 
to 1865, inclusive. 



Articles. 


1862. 


1S63. 


1864. 


1865. 


Corn, Northern, per bushel . . 
Cranberries, per bushel .... 

Advance each year .... 


.07 
.06^ 
$3.00 
.18 
.09 
.12 
.85 

2.50 
.11 
.14 

8.50 
.08 
.Hi 
.06 
.35 

1.00 
14.50 


.06 
.09 

$3.00 
.22 
.12 
.14 
1.00 
4.00 
.16 
.18 

10.00 
.11 
.13 
.07 
.50 
1.00 

17.00 


.12* 

•13| 

$3.00 

.45 

.18 

.20 

1.75 

2.75 

.22 

.30 

13.00 

.22 

.23 

.12 

.65 

2.00 

44.00 


.18 
.14 

$3.25 
.45 
.18 
.30 
1.12 
4.00 
.20 
.32 

17.00 
.26 
.30 
.13 
.85 
2.00 

46.00 


$31.73 


$37.78 
19 per ct. 


$69.33 
83 J perct. 


$76.68 
10-J perct. 



Advance in 1865 over the prices of 1862, 141 per cent. 

It will be observed, that the above are articles of domestic produce, not directly 
affected by custom or excise charges. 



INDEX. 



INDEX. 



Ad-valorem duties, 312, 313. 

Agriculture, a form of production, 24- 
26 ; allows little division of labor, 41, 
42, 106; or application of machinery, 
61 ; products tend to increase in value, 
14, 15, 42; affected by mixed cur- 
rency, in America, 205-207 ; its 
wages lowest of all, 261. 

Allen, D. 0., quotation, 95. 

Allotment system, English, 416. 

American civil war, developed sanitary 
science, 44; effect on consumers of 
cotton, 83; encouraged cotton cul- 
ture elsewhere, 88; influenced by 
mixed currency, 188, 189; did not 
encourage industry, 410. 

Amsterdam, Bank of, 225, 226. 

Apprenticeship, shortened by division of 
labor, 38, 39. 

Arbuthnot, quotation, 50. 

Art, a form of consumption, 397-399. 

Atkinson, Edward, statistics of cotton 
culture, 330. 

Balance of trade, 117-120. 
Bankruptcies, relation to currency, 156— 

160, 166-168; correspond to quality 

of currency, 203, 204. 
Banks, mixed currency, 141, et seq.; 

Suffolk, 164 ; savings', 184-186 ; 

mixed currency favorable Jo V 216- 

219; English Joint Stock, 217, 218. 
Bank of England, 142, 199, 201, 228, 

247, 292, 363, et seq. 
Barter, 121, 122. 

Bascom, Professor, quotation, 6, 175. 
Bastiat, F., illustrations of value, 9-13; 

quotations, 123, 294. 
Bequest, laws of, 371-379. 
Bills of exchange, 241-251. 
Book accounts, 240, 241. 
Bounties, compared with protective 

duties, 318, 319. 



Buildings, how affecting rent of land, 

299-301. 
Burke, Edmund, quotation, 28 ; law of 

currency, 230. 

Caienes, Professor, quotation, 4. 

California, amount of gold yielded, 214 ; 
interests opposed to mixed currency, 
237. 

Capital, definition, 19; growth of, 19, 
20, 56, 57; relation to labor, 21, 22; 
office in production, 31 ; fuller defi- 
nition, 55 ; distinguished from wealth, 
55, 56 ; divided as fixed and circulat- 
ing, 57, 58; distinction as productive 
or unproductive rejected, 58-60; co- 
operates with labor, 60-76; the pro- 
portion between them, 60-62; can 
there be a surplus? 64-66; import- 
ance that it be sacred from violence, 
66-68; its best distribution, 68, 69; 
freedom from petty restraints, 69-71 ; 
is created by the business which re- 
quires it, 94 ; is it increased by issue 
of paper money? 207, 208; or made 
more convenient to young men? 
215, 216 ; loaned in two forms, 253 ; 
its remuneration to be distinguished 
from profits, 280; applied to land, 
becomes an element of rent, 298; is 
public debt capital? 355, 356; must 
be reproduced, 382, 444 ; wealth un- 
productively applied not capital, 386 ; 
relation to population, 447, 458, 459. 

Charity, its place in political economy, 
411, 412; discussed, 412, et seq.; how 
far can fictitious employment be sub- 
stituted? 406, 407. 

Circulating capital, 57, 58. 

Circulation of mixed-currency banks, 
141, 145, 209 ; fluctuations, 161, 232. 

Coal, importance of its proximity to 
iron ore, 94, 95. 



492 



INDEX. 



Cobden, his French treaty, 113, 114; 
opinion of mixed currency, 223. 

Coinage, peculiar adaptation of gold 
and silver, 127 ; discussed, 130, 131 ; 
■what government really does by it, 
170-172. 

Colwell, Stephen, his estimate of secu- 
rities in the United States, 214. 

Congress of nations, 437-440. 

Consolidation of national debt, 341-345. 

Consumption, place in the science, 23, 
56, 57; mistaken consumption, 72, 
73, 383-386; how consumption comes 
into relation with production, 75, 76 ; 
mischievous consumption should be 
taxed, 311, 320, 321; to what extent 
consumption should be taxed, 313, 
314; consumption discussed, 380, et 
seq. 

Contraction of mixed currency, how ef- 
fected, 157-159; illustrated, 161, 162, 
168. 

Contracts, effects upon them of credit, 
134, 135; of mixed currency, 166- 
174, 181-183. 

Convertibility of currency distinguished 
from redeemableness, 140, 141; of 
different kinds of currency, 232. 

Cooke, Jay, his pamphlet on National 
Debt, 353-362. 

Co-operation of labor (see Division of 
Labor), 54-71. 

Co-operative associations, 274-279. 

Corporations, not generally so effective 
as partnerships, 69. 

Corporate foreign indebtedness, 346. 

Cotton, relation to gold, 128; how af- 
fected by mixed currency, 205-207 ; 
propriety of export or excise duty, 
327-330. 

Credit currency, defined, 124 ; discussed, 
131-138; is it capital? 207; resume', 
232. 

Credits, should they be taxed? 338,339. 

Culture economic, field of this agency, 
71-76. 

Currency, defined, 124; its four kinds, 
124, 125; are deposits currency? 151 
-153 ; are bills of exchange currency ? 
249-251. 

Customs, frauds in, 119, 120, 313; a 
mode of taxation, 312; discussed, 
312-318. 

Debt, evidences of, 240-251; national, 
consolidation of, 341-345; fallacies 
respecting, 353-362, 410, 411; indi- 
vidual, affected by credit currency, 
132; by mixed currency, 166-174, 
181-183. 

Deferred income, 324, 325. 

Deposits, 141, 146; analyzed, 148-154; 
under mercantile currency, 231, 232; 
increased bv usury laws, 292. 

Destruction of'wealth, 73, 380. 

Direct taxation, 312. 

Discount, its limits, 97, d 



Distribution, its place in the science, 23 ; 
discussed, 252-379, 469, 470. 

Dividends, how classed, 287, 288. 

Division of labor, its place in produc- 
tion, 31; illustrated, 32-34; advan- 
tages, 34-39 ; limitations, 40-43 ; dis- 
advantages, 43-52 ; the balance cast, 
53, 54 ; resume, 252. 



Education, public, 402, 440-443 ; of the 
laborer, affecting wages, 262, 443; 
especially woman's wages, 265. 

England, agricultural class, 47, 369; 
corporations, 69 ; compared with Bra- 
zil, 81 ; protection, 90, 360 ; value of 
land, 95, 96; emigration caused by 
American protection, 99; trade with 
United States, 111, 245; depreciation 
of Napoleonic money, 135 ; currency 
described, 202-205, 226, 227; ex- 
change with, 247-249 ; impoverish- 
ment of masses, 369, 370 ; mischievous 
consumption, 392 ; pauperage, 412, 
416-418 ; public education, 440 ; 
causes of " over - population," 456, 
457. 

Entail, 375-379. 

"Entrepreneur," 279. 

Ethnical characteristics, affecting man- 
ufactures, 27 ; trade, 81 ; consump- 
tion, 451. 

Europe, rent, 294 ; improvements of 
soil, 299; financial system, 363, et 
seq.; luxury, 391; aggregate reve- 
nue, 405. 

Exchange, its place in the science, 22, 
23; a form of production, 29-31; ori- 
gin, 77; principles of, 78-85; ob- 
structions, 85-117; international bal- 
ances, 117-120; instruments of, 121- 
251; bills of, 241-249; are they cur- 
rency? 249-251; fictitious (bank), 
caused by usury laws, 291, 292. 

Excise, 319, 320. 

Expansion of mixed currency, how ef- 
fected, 156,157; illustrated, 161, 162, 
179 ; affecting manufactures, 191, 192 ; 
affecting wages, profits, &c, 302-306. 

Exports, origin, 79, 80; relation to im- 
ports, 117-120; taxation of, 325-330. 

Export of American cotton, 328; of 
American stocks, 347-350. 

Fallacies respecting protection, 101- 
108; mixed currency, 207-223; for- 
eign indebtedness, 350-353 ; national 

. indebtedness, 353-362. 

Fawcett, Professor, quotation, 77; his 
account of co-operative associations, 
274-279. 

Fertility, an element of rent, 297, 298. 

Fisheries, a branch of agriculture, 26. 

Fixed capital, 57, 58. 

Foreign indebtedness, its interest in- 
cluded in balance of trade, 120. 

Foreign exchange, 243, et seq. 



INDEX. 



493 



France, conflict of capital and labor, 22 ; 
injustice to capital, 67, 68; beet-root 
culture, 102, 103 ; commercial treaty 
with England, 113, 114; revolution- 
ary monev, 135; trade with United 
States, national debt, 356, 362; 
growth of manufactures, 394; pri- 
vate frugality, 394; public extrava- 
gance, 396; its war system, 461. 

Free institutions not suited to protec- 
tive policy, 109, 110. 

Free banking, 230, 231. 

Freedom essential to secure just wages, 
255 ; just profits, 281, 

Friendiv societies of Great Britain, 269- 
271,415. 

Frugality, 20, 445; affecting wages, 262, 
263; dependent on sacredness of 
property, 289, 450; examples of pub- 
lic frugality, 296, 404. 

Funding, its origin, 365. 

Genoa, trade and decline, 64 ; bank of, 
225. 

Gibbon, quotation, 384, 395. 

Gold, properties, 127-130; relations to 
credit currency, 132 ; sufficiently 
plentiful for commerce, 213-215. 

Government, influence on economic de- 
sires, 74; claim in distribution, 254, 
449 ; a copartner in production, 307, 
308; necessity for, 401, 402. 

Government bonds, taxation, 339-345; 
exportation, 347-350. 

Great Britain, estimated wealth, 63; 
currency, 202-205 ; abolition of usury 
laws, 290; import of breadstuffs, ef- 
fect on rent, 298 ; taxation, 313, 320, 
321 ; consolidation of debt, 344, 347 ; 
financial, 361-371; primacy in man- 
ufactures threatened by France, 393 ; 
luxurious consumption, 394; church 
establishment, 402; public expendi- 
ture, 405. 

Health, affected by employments, 43- 
49 ; risks to, affecting wages, 261. 

Holland, reason for commercial enter- 
prise, 28; pauperism, 412. 

Immediate -distinguished from ulti- 
mate resources in bank accounts, 
140, 145, 147; are stocks included? 
153, 154. 

Imports, origin, 79, 80; relation to ex- 
ports, 117-120; how related to pro- 
tective duties, 193-195; to mixed 
currency, 195 ; 196; to rent, 298; of 
foreign materiel in war, 424. 

Incomes, affected by credit currency, 
133; by mixed currency, 221-231, 
305. 

Income tax, 322, 339 ; political consid- 
erations, 333. 

Indebtedness, discharged in currency, 
165; national (United States), its 
consolidation, 341-345; fallacies re- 



specting, 353-362 ; national, relations 
to modern financial system, 369; for- 
eign national, interest included in 
balance of trade, 120 ; economy of, 
346-353. 

India, rebellion in, affecting trade, 83; 
affected by rebellion in the United 
States, 88 ; distance of coal from iron 
ore, 95 ; cotton culture, 328. 

Indirect taxation, 312, 314, 365, 368, 369. 

Individual opposed to public or corpo- 
rate enterprise, 40, 50-52, 69, 403, 
404, 407-410, 414, 419. (See Co- 
operation and Division of Labor.) 

Infancy of manufactures, argument from, 
101, 102; sophistry of the argument, 
103, 104. 

Inheritance, laws of, 371-379. 

Interest, how related to mixed currency, 
196-201, 220, 302-306; in England, 
204; its place in distribution, 253; 
discussed, 288-294. 

Invention facilitated by division of la- 
bor, 35, 36; requiring increase of 
capital, 448. 

Ireland, causes of her decline, 63, 64; 
causes of emigration, 104; famine of 
1847, effect on finances, 199; cur- 
rency, 202, 228; pauperism, 420. 

Iron, manufacture in the United States, 
93-101 ; period of its use, 129. 

Jewish, only race not deterred from 
gain by persecution, 68. 

Labor, defined, 18 ; work of slaves not 
labor, 18, 19; relation to capital, 21, 
22; division of, 31-54; co-operation 
with capital, 60-71; proportion to 
capital, 60-66; productive or unpro- 
ductive? 71-73; classified, 253, 254; 
combinations, 269-71. 

Land, the foundation of rent, 295 ; ap- 
pendages, 299-301. 

Learning, economic relations, 74 ; affect- 
ing wages, 262 ; as a form of con 
sumption, 397-399. 

Legal tender, when unjust, 132-138; 
how far just, 170-172; national-bank 
currency, how far legal tender, 234. 

Legislation, relations to wealth, 1, 2, 4, 
5; when mischievous, 69-71; in a 
free government fatal to protection, 
109, 110 ; does not determine the 
value of money, 131 ; cannot control 
premium on gold, 132; can it restrain 
the issue of credit currency? 134- 
136 ; can it regulate mixed currency ? 
219, 220. 

Levi, Professor, quotation, 63; estimates 
revenues of Great Britain from dis- 
advantageous consumption, 320, 321 ; 
estimates contribution of the several 
classes, 370. 

Licenses, a mode of taxation, 321. 

Life, affected by employments, 43-49; 
its risks affecting wages, 260. 



494 



INDEX. 



Location, an (dement of rent, 296. 

Luxury, defined, 386-388; relations to 
wealth, 388-392; on the degree of, 
392-397, 449, 450; relation to popu- 
lation, 460. 

Mackintosh, quotation, 84. 

Malthus, his theory of population, 452, 
et seq. 

Manufactures, their products tend to de- 
crease in value, 14, 15 ; a form of 
production, 26-29 ; law of their diffu- 
sion, 27, 28; amount of, 28, 29; be- 
long to old and rich countries, 105, 
106 ; affected by mixed currency, 190 
-196. 

Martin, J. G., reference to, 190-200. 

Massachusetts, shoe trade, 104 ; cur- 
rency, 163, 164, 185, 228, 234; rate of 
taxation, 331 ; vital statistics, 462-464. 

McCulloch, his theory of inheritance, 
372, 373. 

Mechanical employments affecting 
health and life, 44, 45. 

Medium of exchange, what, 122, 123; 
is a mixed currency satisfactory? 
164-168. 

Mendicancy, 414, 421. 

Mental power, its wages, 266-268. 

Mercantile currency, defined, 125; dis- 
cussed, 224-232. 

Mercantile theory, the, 54. 

Mill, J. S., definition of labor, 18; states 
law of currency, 215 ; quotation, 279, 
n., 308. 

Mining, a branch of agriculture, 57, 58. 

Mistaken consumption, 72, 73 ; dis- 
cussed, 383-386, 445. 

Mixed currency, denned, 124, 125; dis- 
cussed, 138-223 ; does it satisfactorily 
perform the function of money? 155- 
184; its effects, 184-207; fallacies re- 
garding it, 207-223 ; cheapness, 208- 
212, 227; resume, 232; effect on inter- 
est, 292, 293 ; complicates the whole 
scheme of distribution, 302-306 ; neu- 
tralizes value of government bonds 
sold abroad, 348, 349. 

Money, denned, 124, 169-172; different 
forms, 126, 127 ; is mixed currency a 
satisfactory substitute? 155-184; is 
money sufficiently plentiful for com- 
merce? 213-215; its relations to a 
state of -war, 422-424. 

Morality, relations to political economy, 
391-393, 449-451, 461, 462. 

Moral power, its wages, 266-268. 

Mortgages, should they be taxed ? 337- 
339. 

Mortmain, 371-373. 

National-bank system, compared with 
the State-bank system, 233-240. 

National taxation, defined, 311; dis- 
cussed, 312-330; how supplemented 
by State taxation, 336, 337; debt, 
341-345, 353-362, 410. 



Natural powers confer no value, 10, 12, 

16. 
Necessary wages, 255, 256 ; profits, 284, 

285. 
Newcombe, S , his "Financial Policy," 

424; quotation, 467. 
New England, its natural industry, 114; 

originally opposed to protection, 116 ; 

currency, 163, 164; its agricultural 

competition with the Western States, 

300; public education, 442,' 443. 
New York, banks of, 142. 
Nominal distinguished from real wages, 

256, 257. 

Opdtke, George, computes profits of 

importers, &c, 317, 318. 
Overstone, maintained that deposits are 

not currency, 151. 

Parish allowance, English, 415. 

Pauperism. (See Poor Laws.) 

Peel, his Bauk Act, 199, 200; quota- 
tion, 201. 

Personal estate, defined, 280, n. 

Physical power, its wages, 266-268. 

Political economy, defined, 1 ; a positive 
science, 3, 4; embarrassed by legis- 
lation, 4, 5; by prejudice and self- 
interest, 5, 6 ; by loose phraseology, 7. 

Politics, relation to political economy, 
1, 2, 15, 16, 391, 449-451. 

Poll-tax payers, political danger from, 
332, 333. 

Poor-laws, 411, et seq. (See Charity.) 

Population, 447, 452, et seq. 

Price, what, 174; distinguished from 
value, 175, 176; how affected by in- 
crease of currency, 215; is the only 
thing gained by currency expansion, 
223, 354. 

Primogeniture, supported by Mr. Mc- 
Culloch, 373; discussed, 375-379. 

Production, its place in the science, 22; 
its forms, 24-31 ; conditions of high- 
est production, 31 ; discussed, 32-76, 
410. 

Productive or unproductive capital, 58 
-60; labor, 71-73. 

Profits, place in distribution, 253, 254; 
discussed, 279-288; affected by tem- 
porary rise of wages, 286, 2S7; by 
currency inflation, 302-306; of im- 
porter, retailer, &c, 317, 318. 

Property tax, discussed, 331-339. 

"Protection," from physical causes, 85- 
87; for industrial purposes, 91-108; 
for public justice, 109, 110; for na- 
tional security, 110-112; for retalia- 
tion, 112-114; defeated by mixed 
currency, 190-196 ; cost of " protec- 
tion" through customs greater than 
by bounties, 314-317; not secured 
by national debt, 354-360. 

Publication of tax lists, rightfulness of, 
310, 324. 

Public consumption, 401-410. 



INDEX. 



495 



Rates of interest, 196-201; of exchange, 
246, 217; of profits, 283, 284. 

Rent, an apparent anomaly, 17 ; how af- 
fected, by credit currency, 133 ; place 
in distribution, 253; discussed, 294- 
302; affected by currency inflation, 
302-306. 

Reproduction (human), chiefly through 
agriculture, 25, 47-49; how affected 
by destitution, luxury, &c, 453. 

Reproduction of wealth, 75, 76, 377. 

Reproductive consumption, 444, et seq. 

Retaliation in commercial legislation, 
112-114. 

Revolution, American, vast transfers 
without equivalent, 134, 135; debt 
incurred, 363; expense to England, 
366. 

Ricardo, his theory of rent, 398, n. 

Rome, money, 126; luxury, 396; pau- 
perage, 413. 

Savings' banks, relations to mixed cur- 
rency, 184-186; character of deposi- 
tors, 358. 

Scotland, currency, 202, 203, 228 ; public 
education, 442, 443. 

Sex, distinction made in wages, 263- 
265. 

Shoe trade of the United States, 104. 

Silver, properties of, 127-130. 

Small notes, 228, 229. 

Smith, Adam, pin-making in his time, 
34 ; distinguishes between productive 
and unproductive labor, 71-73 ; the- 
ory of cheap currency, 211, 212; defi- 
nition of wages, 255; -principles of 
taxation, 308-310. 

Smith, J. Y., quotation, 190. 

Social condition, affecting trade, 81, 83. 

Specific duties, 312, 313. 

Speculation, affects wages differently 
from other commodities, 257, 258. 

Spirits, taxation of in Great Britain, 
320, 321. 

Stamps, a mode of taxation, 321. 

Standard of value, what, 123, 169-72; 
does a mixed currency act justly as 
such? 172-184. 

State taxation (American), discussed, 
331-839. 

Stocks, held by banks, 143; not imme- 
diate resources, 153, 154. 

Strikes, 272, 273. 

Subsistence (human), nature's provision, 
375-377 ; relation to population, 452, 
et seq. 

Suffolk-bank system, 164. 

Sumptuary laws, discussed, 399-401. 

Surplus production necessary to trade, 
83. 

Suspension better than severe contrac- 
tion with mixed currency, 168, 220, 
221. 

Tariff, history of American, 115-117, 
192-196. 



Taxation, place in distribution, 254; 
discussed, 306-339; of government 
bonds, 340-345. 

Tea, taxation in Great Britain, 313. 

Tender, legal, 132-138, 170-172, 234. 

Territorial division of iabor, 81-85. 

Territorial endowments affecting manu- 
factures, 28; trade, 80; government 
expenditures, 404, 405, 450, 451; 
amount of capital, 447. 

Tobacco, once legal tender in Virginia, 
126; taxation in Great Britain, 320, 
321. 

Trade, relations to exchange, 77, 78 (see 
Exchange) ; balance of, 117-120. 

Trades' unions, 271, 272, 415. 

United States, estimated wealth, 62, 
63; iron manufacture, 93, 101, 103; 
immigration, 99 ; shoe manufacture, 
104; true economical interests, 114- 
117; prosperity attributed to mixed 
currency, 212, 213; national-bank 
system, 233-240; rents, 294; taxa- 
tion, 307 ; unnecessary losses during 
rebellion, 137, 138; rapid depletion 
in 1864-65, 350; railroads, 384; pub- 
lic education, 402 ; public expendi- 
ture, 405 ; pauperism, 412, 413, 419. 

United-States Bank, control of interest, 
198 ; of exchange, 247. 

Usury laws, 290-293. 

Utility, distinguished from value, 14-17. 

Value, its elements, 8; illustrated, 9- 
13; distinguished from utility, 14-17 
(see Standard of value) ; a property 
of gold and silver, 127, 165, 166; its 
laws do not control mixed currency, 
155, 156; distinguished from price, 
175, 176. 

Value-currency, of two kinds, 124, 125 ; 
how regulated, 180, 181; is it more 
expensive than mixed currency ? 208 
-212. 

Venice, trade and causes of decline, 64 ; 
hostile commercial legislation, 113. 

Wages, affected by protective legisla- 
tion, 113; classified, 253-255; dis- 
cussed, 255-265 ; second classification, 
266; discussed, 266-268 ; a temporary 
rise in wages affecting profits, 286, 
287; how affected by mixed cur- 
rency, 256, 257, 302-306; variations 
in, 397. 

Wants (human), place in the science, 
2-4; affecting wages, 255, 256; the 
spring of wealth, ^378-390. 

War, affecting trade, 83; affected by 
trade, 84, 85 ; how far requires pro- 
tective legislation, 110-112; relations 
to mixed currency, 187-189 ; to mod- 
ern financial system, 369 ; the finance 
of, 422-424 ; economy of war system, 
425, et seq.; affecting population, 
461. 



493 



INDEX. 



Wealth, defined, 7, 8; forms in which 
created, 24; is debt wealth? 353-355; 
does it belong to the living or the 
dead? 371-373. 

Western States of America, mineral 
wealth, 108; their natural industry, 
114; how affected bv mixed cur- 
rency, 205-207; rent, '300, 301; ne- 
cessity of taxing credits, 339. 



Wheat, price, how affected by mixed 
currency, 205-207; by export duty, 
325, 326. 

Woman, her wages, 263-265; should 
she be taxed ? 309 ; largely depend- 
ent for support, 411. 

Yatman, J. Y., his tables of currency, 
162. 



THE END. 



Cambridge : Stereotyped and Printed by John Wilson and Son. 



SCIENCE OF WEALTH. 

A MANUAL OF POLITICAL ECONOMY, 

EMBRACING TEE LAWS OF TRADE, CURRENCY, AND FINANCE. 
By AMASA WALKEE, LL.D., 

LECTURER ON PUBLIC ECONOMY AT AMHERST COLLEGE. 

Fourth Edition. Revised and Enlarged. 8vo. $3.00. 



CONTENTS. 

Book I. Definitions. — Character of the Science; Definition of Wealth; 
Definition of Value; Distinction between Utility and Value; Definition of Labor; 
of Capital; Relations of Capital and Labor; General divisions of the subject. 

Book II. Production. — Conditions of the Highest Production ; Division of 
Labor; Its Advantages; Its Limitations; Its Disadvantages; Co-operation of Cap- 
ital ; Economic Culture. 

Book III. Exchange. — Part 1, Trade. — Principles of Trade ; Obstructions 
to Trade; Protection; Fallacies of the Protective Theory; Balance of Trade; Part 
2, Instruments of Exchange. — Barter, and different forms of Currency; 
Money; Credit Currency; Mixed Currency; Analysis of Bank Deposits; Fluctu- 
ations in the quality and quantity of Mixed Currency; Tables and Diagrams; 
Mixed Currency as a medium of Exchange; as a standard of Value; Effects of 
Mixed Currency; Fallacies regarding Mixed Currency; Mercantile Currency; The 
New National Currency of the United States ; Evidences of Debt. 

Book IV. Distribution. — Divisions of the Subject; "Wages; Labor Com- 
binations; Profits; Interest; Rent; Wages, Interest, and Rent, as relatively affected 
by a currency inflation; Principles of Taxation; National Taxation; State Taxa- 
tion ; Foreign Indebtedness ; Rise and Growth of the Modern Financial System ; 
The Laws of Inheritance and Bequest. 

Book V. Consumption. — Divisions of the Subjects ; Mistaken Consump- 
tion; Luxurious Consumption; Public Consumption; Charity and the Poor Laws; 
The Finance of "War; The Economy of the War S} T stem; Economy of Public 

Education; Population; Importance of a Bight Consumption. 

- 






OPINIONS OF THE PRESS. 



" The author of this volume has made a valuable addition to the American literature of 
Political Economy. While he gives a fair share of attention to all topics which the American 
reader needs to understand, in order to apply the science to the actual affairs of his country, 
he discusses the subject of the curreucy with such fulness and ability as to entitle his work 
to a foremost place among the many volumes which economical science, especially in Europe, 
has recently contributed to that subject. . . . Mr. Walker has done well to give us at this 
time the results of his life-long study into the characteristics and functions of money." — 
North-American Review. 

" No book has been published in the United States with the same practical scope and 
design; and, we may add, no book distinctively treating of our national financial troubles is 
more worthy the careful attention of every business man. The practical aspects of the science 
prevail throughout." — Springfield Republican. 

" It is hardly possible to open the book on any page without lighting on some fact im- 
portant in itself, or important for the trains of thought it sets in motion. We are acquainted 
with no other work on Political Economy which equals Mr. Walker's in the power to interest 
a practical American. The author has been himself in trade; and therefore knows what ques- 
tions intelligent business men are continually asking, and what facts they desire to know." — 
Boston Transcript. 

"An able and exhaustive treatise, which cannot fail to become extensively useful." — 
Scottish-American Journal. 

" Mr. Walker has for years been at the head of the political economists of the country; 
and his counsels have had weight with all those who have delighted in the science of wealth, 
with whom the present book will find especial favor." — Boston Saturday-Evening Gazette. 

" We doubt if any work exists, which gives a more complete view of the monetary ques- 
tion. Minute details and illustrations calculated to make the subject plain to students and 
the masses of business people abound in this work." — Observer, N. Y. 

" One of the most important books, if not the foremost in point of merit and the good it 
will do in the country, that have appeared from American authors during the year. ... A 
clear, simple, and thorough exposition of the natural laws which govern finance and trade. 
In the ability with which it presents its subjects, it takes rank with the ablest treatises in the 
language; and it is great praise to say that its style is so clear, logical, and precise, that it 
will interest the general reader, as well as instruct the student in the science of which it 
treats. . . . We strongly recommend the adoption of Mr. Walker's work as a text-book in our 
colleges all over the country. It has every quality to fit it for profitable use in instruction." 
— New-York Evening Post. 

" We regard this treatise as one of the most timely and valuable contributions that could 
possibly have been made to the solid literature of the country in its present condition. . . . 
Iu conclusion, we would express the hope, that this able and comprehensive work — the best, 
probably, ever issued from the American press — may find its way into the hands of every 
young person, whatever may be his aims or preparation for the business of life." — Boston 
Commercial Bulletin. 

" Mr. Walker's success must be admitted. His definitions are precise, his style is clear, 
his illustrations are copious, and his conclusions are in the main both important and irre- 
fragable." — Round Ta'de.N.Y. 

" The precision of Mr. Walker's ideas, and the correctness of his reasoning, are in strong 
contrast to the great mass of our politico-economical literature, and we may safely say that 
our country has produced no work on the subject which is better worth reading." — Nation, 
N.Y. 



" No man in America is better calculated to discuss the subject of finance and its kindred 
issues wisely and satisfactorily than Amasa Walker. . . . We do not assume too much when 
we assert that no business man of ordinary intelligence is excusable in denying himself so 
important an auxiliary (as this work)." — Chicago Journal of Commerce. 

" We deem it a duty to call the particular attention of our readers to this able work of 
Mr. Walker. The large and broad views expressed in it in regard to free trade, value, labor, 
wages, government, entitle the author to take rank among the advanced thinkers of the age. 
We have extended our comments on Mr. Walker's ' Science of Wealth ' far beyond what is' 
usual in a daily journal (ten columns), but not, we trust, beyond what our readers will excuse, 
in consideration of the importance of the subjects treated of, and the ability of Mr. Walker's 
work, which we deem creditable to the country." — New-York Commercial Advertiser. 

" The appearance of a work of sterling merit upon this most important of subjects, one 
which may be depended upon as thoroughly reliable in all its investigations and statistics, is 
most opportune at the present time. Especially is it welcome as coming from one who has 
attained eminent success as a merchant, and therefore has a right to talk on such matters 
from his own practical acquaintance with them." — Shoe and Leather Reporter. 

" Mr. A^alker is nothing of a sentimentalist in Political Economy, he is no dreamer or 
theorist, but a plain, practical matter-of-fact writer upon topics far better embellished by 
figures of arithmetic than figures of rhetoric." — Boston Post. 

" There is much besides the elegant bodily form in which Mr. Walker's book is put forth 
to induce us to regard it as the worthiest contribution which American Literature has yet 
made to the Science of Wealth. The work is entitled to high praise as a compact, lucid state- 
ment of the best results of the best and latest thinkers in this branch of philosophy." — The 
New Englander. 

" In this work, Prof. Walker gives an extraordinary measure of attention to currency and 
taxation, which he discusses with a ripeness of knowledge and ability surpassed by no other 
writer on subjects so vitally important to the American reader." — N. Y. Times. 

" We doubt if any work exists that gives a more complete view of the monetary question." 
— N. Y. Observer. 

" In matter and form, in clear and condensed statement, it shows that it is the result of 
many years patient study and labor." — Worcester Palladium. 

" The work is well adapted to the use of students, in our institutions of learning. It is 
clear and full, without being voluminous, and orderly in arrangement. ... A text-book 
should lay the proper subjects before the mind of the student, and this we believe the Science 
of Wealth will successfully accomplish." — Bibliotheca Sacra. 

" We confess our indebtedness to Mr. Walker for a vast fund of valuable information. 
We have been highly entertained in the perusal of his elaborate researches." — Jacksonville 
(III.) Journal. 

" It is valuable not only as a very succinct, yet on all important points, a comprehensive 
treatise on the Science of Political Econom}', but as especially an American work, dealing in 
the special facts of our financial affairs." — Meihodist, N. Y. 

" In the volume before us the author has discussed the complex science with great ability, 
and has so adorned it with beautiful rhetoric, that it is a pleasure to follow him through all 
its details. The style of his composition is remarkably succinct, and his reasoning clear and 
comprehensive." — Chicago Times. 

" It is doubtful if any American writer on the subject has brought to the task richer 
stores of information or more of the fruits of liberal and ripe reflection, than the author of 
this work." — Worcester Daily Spy. 

" We know of no work which might be more fitly placed in the hands of English mer- 
chants and financiers at the present time." — London Star. 

" The author's design has been to produce a work especially useful to business men. 
His twenty years experience in commercial affairs, in the earlier part of his life, and his still 
longer study of the laws of wealth, give him many qualifications for the work he has under- 
taken. We feel justified, therefore, in saying that no system of economical science, known 
to us, is so largely the result of a practical acquaintance with manufacture, banking, and 
trade, as this of Mr. Walker's." — MerchanVs Magazine, N. Y. 






OPINIONS OF INDIVIDUALS. 



"It is a -very timely and very able production. Such a body of useful information, and 
sound discussion is nowhere to be found, compacted into the same space, and I take great 
pleasure in commending the volume to business men, to general readers, and all students of 
political economy." — Prof. A. L. Perry, Author of the Elements of Political Economy. 

" It certainly supplies a want that has long been felt in our higher institutions." — Presi- 
dent Lindsay, Genesee College. 

" The positions are stated with clearness and precision, and are vigorously maintained. 
The work is full of instruction and interest to the general reader, and has many of the best 
qualities of a text-book." — President Harris, Bowdoin College. 

"All the class are much pleased with your work. I find it very much easier to teach 
than any other I have tried."- — Prof. Fairchild, Agricultural College, Lansing, Michigan. 

" I have used the book with great interest, and found it easy for the students to under- 
stand." — Prof. Ellis, Oberlin College. 

" I have used the Science of Wealth, as a text-book in College this year, and am very glad 
to express my conviction, that in matter and manner, especially its pertinency to the want of 
our times and country, it is superior to any other work in that department." — President 
Kitchel, Middlebury College. 

" It is just what I was wanting to see. I am satisfied of the value of the work, and the 
ability with which you have handled the subject. I think you have conferred a great favor 
on the public, by the issue of a work at once so readable and scientific." — Prof. J. Haven, 
Chicago Theological Seminary. 

"lam much pleased with the clearness with which your positions are stated and illus- 
(rated, and the power of condensation you have been able to combine with this perspicuity." i 
William Cullen Bryant. 

" Amongst its conspicuous merits I recognize its generous tone, its philanthropic spirit, 
its hopeful views, and the warm glow of humanity over it. Political Economy in your hands 
is not the pitiless science it is commonly assumed to be." — Hon. George S. Hillard. 

" The book is a valuable addition to political science. It is clearly written, terse in style. 
and contains a mass of valuable information of great importance now, when, by reason < 
our debt, we are compelled to study economy." — Senator Sherman. 

" It is the ablest and soundest work of like character I have seen. . . . The best as a text- 
book ever issued from the American press." — Caleb Stetson, Esq., Pies. Shoe If Leather- 
Dealers National Bank, Boston. 

" It is the best work of the kind I have read, and its rapid sale shows that it is appre- 
ciated." — Hon. William Hyde, Pies. Ware National Bank. 

"I am certain that it is a work of high usefulness, and great merit." — J. Alexander ~ 
Ferris, San Francisco, Cal., Author of the Financial Policy of the United Stales, Illustrated. 

" I consider Prof. Walker's work on the ' Science of Wealth ' a clear, careful, and prac- 
tical statement of the leading principles of Political Economy." — J. K. H. Wilcox, Professor 
of Political Science in Howard University, Wasliington, D.C., Editor Social Science 
Review, and Secretary Washington Statistical Soeiety. 

" I hear that a new edition of your valuable and instructive work will soon appear, 
regard it as a work of the highest merit, and shall be glad if a new edition is published."- 
Alexander Delmar, Director Bureau of Statistics, Washington, D. C. 



Published by 

LITTLE, BROWN, & CO., 

110, Washington Street, Boston, 



i 



